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I agree with the idea and purpose too tom. Not so sure about the execution. It is quite an innefficient way to target the moral hazard problem though. Also it will just increase the cost of borrowing. Although as Mark pointed out, given that the larger banks benefit from risk...

Yep - but this is pretty easy to 'claim'. Good in theory, loophole in practice.

Also banks are heavily regulated. They have their own watchdog purpose built to look over them! APRA. They are indeed central to the functioning of a well working economy, and the costs of failure are extraordinary. Hence the additional oversight. In Australia, the competitive dynamics...

Haha this is a quality post for this time of the night! Admittedly, my ability to comprehend it was quite limited! Not sure the miners have it completely support free. Favourable depreciation, instant exploration write-offs, etc are pretty favourable in a capital intensive industry.

Australia runs persistent current account deficits. So each year our private debt levels increase - or our net foreign liabilities - to fund that CAD. So long as we run CAD's, the private debt levels are not coming down - the rate of increase my fall if the CAD falls, but we're not going to...

Haha i didnt think that gaurantee was still in place - thought it was temporary to wade of GFC confidence effects. I'm not sure i buy into the private debt statistics mattering all that much. If its being used productively, and generates a return that outstrips its cost - the more the better...

Great fable Mark. But what happens if they all come in and ask for their money back at the same time? BANK RUN!!

Haha i've had long long debates about this with a number of economists. Its a pretty good idea. From memory, Swans last budget had some tool to do exactly this (albeit, small). I dont know much in terms of detail and dont think it was ever legislated.