The need for a formal system of deposit insurance has been apparent since the run on building societies in Victoria in 1990, leading up to the collapse of the Pyramid Building Society.With no deposit insurance scheme in place, all Victorian taxpayers wore the cost, through a three cents per litre levy on petrol, a tax that remained for five years.However, the Wallis committee, in the 1990s, decided there wasn't much merit in deposit insurance (in spite of having support from the Reserve Bank of Australia).It took the failure of HIH Insurance, in 2001, to create the momentum for a serious study of the options. Kevin Davis, a banking academic at the University of Melbourne, led that study, but the Coalition government largely ignored the resulting advice to establish a formal mechanism to secure bank deposits.The financial crisis of 2008 finally activated the Financial Claims Scheme, but without any long-term funding mechanism being put in place.In 2012, the International Monetary Fund wrote, in its "Financial System Stability Assessment" report on Australia, that "the ex-post funded deposit guarantee program (the Financial Claims Scheme) seems inadequate to address a contagion risk… [where] stress in one bank [is] quickly transmitted to others."Davis said yesterday of the levy proposal: 'I don't see any problem with it at all.""It makes sense on competitive neutrality grounds. There is a general perception that the banks are guaranteed beyond the deposit insurance cap, so the government would prop up the banks anyway."You can't make a strong case for the levy on the grounds that taxpayers are at risk, because if they did fail APRA would take the place of an insured depositor and stand ahead of other claimants on the banks' assets under the Financial Claims Scheme."Ultimately, you do need APRA to have access to funds. When we did the study we said you can have a fund with a positive balance or a zero balance."[That is] as long as the fund can get money out of the government, and go into overdraft, and draw back up."As for picking the right level for a levy, Davis said one option was to "work out the implied advantage to banks from the implicit government guarantee of funding versus [that to] other institutions."