Australia announces withdrawal of bank funding guarantee

Category: World News

Date Added: 8 February 2010

FOREIGN STAFF

Sydney

AUSTRALIA said yesterday it would withdraw its bank funding guarantee due to improved conditions, ending a scheme put in place at the height of the global financial crisis.

Treasurer Wayne Swan said the Council of Financial Regulators had recommended ending the measure, which he said had been vital in stabilising Australia’s banking system “when others were collapsing across the globe”.

“It gave our banks continued access to global capital markets on competitive terms, which has been critical in supporting the flow of credit through the Australian economy,” he said.

Under the scheme, first announced on October 12 2008, the government guaranteed the wholesale debt obligations of Australian banks if the financial institutions paid a fee. Swan said the guarantee, which would be withdrawn on March 31, had helped support competition in the sector during the financial crisis, which hit smaller lenders particularly hard. “Without the guarantee, our banks would have lent less and interest rates for borrowers would have been higher, leading to lower growth and higher unemployment,” he said.

“It has offered wholesale funding certainty to more than 150 Australian authorised deposit-taking institutions, including regional banks, building societies and credit unions. The guarantee has allowed non major Australian banks to raise over A32bn (US27,6bn) in funding from international credit markets.”

The Council of Financial Regulators, which includes the heads of the central bank and Treasury, had advised that bank funding conditions had improved to the extent that the guarantee was no longer needed, Swan said.

“The council also advises that it is appropriate we withdraw our guarantee due to the greater strength of our financial system compared to key G-20 countries which have already removed their guarantee or will do so shortly.”

The announcement does not affect the government’s guarantee of bank deposits of less than A1m, which extends to at least October next year. Sapa-AFP

Source: Business Day