Matthew Smith Reporter

Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Deposit levy shows investor sensitivity to bank stocks

Published 02 August 2013 11:10, Updated 26 November 2013 18:35

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Deposit levy shows investor sensitivity to bank stocks

More than 2 per cent was wiped of the market capitalisation of the big four on the back of rumours the government plans to impose a new levy on the banks. Photo: Louie Douvis

The sensitivity of investor sentiment towards our financial institutions was shown on Thursday when more than 2 per cent was wiped of the market capitalisation of the big four on the back of rumours the government plans to impose a new levy on the banks.

Shares in Commonwealth Bank of Australia, Westpac Bank, ANZ and National Australia Bank plunged in trading when The Australian Financial Review broke the news of government plans to impose a 0.05 per cent insurance levy on every deposit of up to $250,000 to protect depositors against collapses.

The government’s plan – expected to start from the start of 2016 and raise as much as $733 million to the budget’s bottom line in 18 months – is expected to be included in Federal Treasurer Chris Bowen economic’s statement to be announced at 1pm today.

Percentage change in the big four banks’ share prices on Thursday.Source: ASX

Shares in the big four banks have risen in the last four years to historic highs, raising questions among investors about whether the stocks have entered bubble territory. At the end of July, shares in CBA were trading at $74.21, it’s highest level in history, representing a 32 per cent gain for investors who have held the frock of the last 12 months.

Cheap funding costs have helped the banks to record earnings, enabling them to pay generous dividend which have appeased investors seeking yield.

But the sell-off yesterday points to the sensitivity investors have around bank stocks trading at such high levels at the moment.

Banks’ exposure to loans means they are vulnerable to any dip or deterioration in the domestic economy.

Former Commonwealth Bank of Australia chief David Murraysaid today a levy on bank deposits would have an economy-wide hit.

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