Insights into Australia’s Financial Claims Scheme: What It Means for Depositors

The Financial Claims Scheme (FCS) is often described as a ‘safety net’ for depositors in Australian banks, building societies and credit unions. While it’s designed to promote confidence in the financial system, the FCS is not a blanket guarantee — and its protections come with important limits and conditions that are often misunderstood.

Here are five key facts about the FCS:

1. The Scheme Is Capped at $20 Billion per Institution

The FCS provides for up to $20 billion per authorised deposit-taking institution (ADI) to cover protected deposits if a bank or credit union fails. This means the total compensation available for all customers of a failed institution cannot exceed that cap — regardless of the size of the bank or the total deposits held. 

For financial institutions such as Westpac, who owns St George, Bank of Melbourne, Bank SA and others, a single $20 billion cap is applicable to the Westpac group.

2. It Is Not a Government Guarantee

Although the FCS is sometimes perceived as a guarantee and commonly referred to as the ‘Government guarantee’, it is not structured as one. The scheme does not create an enforceable right for depositors to be repaid by the government. Instead, it is a policy mechanism that the government may activate under specific circumstances following a bank’s insolvency.

3. Activation Is Discretionary

The Australian Government decides whether or not to activate the FCS once an ADI has been declared insolvent. There is no automatic trigger. The scheme’s discretionary nature means that payment to depositors depends on a formal declaration and administrative process — it’s not guaranteed that the scheme will be invoked in every failure.

4. Funding Only Becomes Available After Insolvency

Funds for the FCS are not pre-funded. If the scheme were activated, the government would need to raise up to $20 billion per failed bank — typically through borrowing or reallocating funds from consolidated revenue — after the institution has been declared insolvent. This means payment to depositors would rely on the government’s capacity and willingness to deploy funds at that time.

5. The Scheme Supports Confidence, Not Certainty

The FCS is designed primarily to support confidence in Australia’s financial system rather than to provide absolute protection. While it plays an important role in preventing panic during times of stress, it’s vital for depositors to recognise that it’s a contingent mechanism, not a guarantee backed by a ring-fenced fund.

In Summary

Australia’s Financial Claims Scheme offers a measure of reassurance but not an ironclad guarantee. With a $20 billion cap, discretionary activation, and no pre-funded reserve, it relies on the government’s post-insolvency response rather than a standing guarantee.

Note: This insight is published based on publicly available information above the Financial Claims Scheme.  It does not constitute financial or legal advice. Azzet recommends obtaining your own independent financial and legal advice prior to any investment decision.