Australian government withdraws bank deposit guarantees

The Australian government yesterday announced that it is withdrawing the guarantee scheme for large deposits and wholesale funding, effective 31 March 2010, in the light of global economic recovery and improved financial markets.

The council of financial regulators consisting of the heads of the Reserve Bank of Australia, Treasury and other regulators, have advised the government that bank funding conditions have improved such that the guarantee is no longer needed, and that no Australian institution will need the guarantee to fund itself.

"The removal would not materially affect banking sector funding costs," Wayne Swan, Australia's treasurer said in a media release.

"I think we've seen from the data that's been published that the interest rate margins are back to pre-crisis levels. That means they are as profitable in terms of their rate margins now as they were prior to the onset of the global financial crisis," Swan further said.
 
The decision will not affect the financial claims scheme which shield deposits of up to A$1 million, until it is reviewed in October next year. 

The Australian government had announced the guarantee scheme in October 2008, in the wake of the global financial crisis triggered by the collapse of Lehman Brothers and crash of the world's financial markets, in order to prop up the country's banking system.

Australian banks and lenders raised over $160 billion through the guarantee, and have so far paid around A$1 billion for its use, which is expected to grow to approximately A$5.5 billion over its full term.