Deposit levy no rash choice: Bowen

The proposed Financial Stability Fund will aim to accumulate funds equal to half a per cent of insured bank deposits, the Treasurer, Chris Bowen, said on Friday.

Bowen outlined some terms for the fund, including confirming that the levy will be five basis points and will come into force from January 2016.

The fund will "build gradually over time to a target size of 0.5 per cent" of protected deposits.

The levy is budgeted to raise A$408 million in its first six months and $325 million in the following 12 months. While the levy will be allocated to a dedicated fund, the government will still count it as revenue for budget purposes.

There is still no decision regarding the fund's governance. Bowen named two possible administrators: the Future Fund and the Australian Office of Financial Management.

He also stressed the Government was adopting the plan on the basis of advice from the Council of Financial Regulators.

"The IMF conducted a public review of Australia's financial system that concluded [in 2012] that Australia should develop a financial stability fund with a financial stability levy as a matter of high priority," Bowen said at a media briefing on Friday.

"The former Treasurer referred that public recommendation to the Council of Financial Regulators. They advised the Government that Australia should develop a financial stability fund."

"[Glenn] Stevens, [John] Laker and [Greg] Medcraft are not known as radical or rash men. They are generally regarded as amongst the world's best financial regulators, and when they make a recommendation, the Government should listen."

Bowen also made clear he'd foreshadowed this levy over the last month in conversations with banks' CEOs.

"In my month as Treasurer, I've met with many people across the financial services sector; telephoned, met them, spoken to them. On most of these occasions I've mentioned that I was considering this recommendation and got feedback… I have mentioned and consulted on this matter."

"Unsurprisingly, people in Australia's banks would prefer that the taxpayer continued to provide the guarantee with no charge to banks. That's an unsurprising position for them to take.

"The regulators recommended a levy of between five basis points and 10 basis points. We think a levy on average of five basis points is the right model, at the lower end of the scale.

"The regulators suggested that we aim for between half a per cent and one per cent of deposits; with a lower levy that means we'll aim for half a per cent.

"I've listened in particular to small banks and credit unions, and I have asked the Treasury to consult very carefully in the coming months to ensure that there is no anti-competitive effect, particularly for small banks and financial institutions."

Bowen also speculated that banks "could make a decision to absorb" the cost of the levy.