The Federal Government has removed the bank large deposit and wholesale funding guarantee established to stabilise banks due to the Global Financial Crisis.
In an announcement today Federal Treasurer Wayne Swan announced the closure of the Guarantee of Large Deposits and Wholesale Funding (Guarantee) program.
The Guarantee had underpinned Australian financial institutions during the global financial crisis, however it was always intended as a temporary measure, which has now been removed with the banking sector showing renewed strength and improved availability of wholesale funding.
“On 7 February 2010 I announced this decision on the unanimous advice of the Council of Financial Regulators, who advised that no Australian bank, building society or credit union will need the Guarantee to fund itself due to improvements in bank funding conditions.” Treasurer Swan said.
“Australian depositors will continue to be protected by the Rudd Government’s Financial Claims Scheme – a separate policy giving free coverage for all deposits up to $1 million. That $1 million cap will continue until at least October 2011, when it will be reviewed.”
Mr Swan was quick to chastise any plans by banks to use the removal of the guarantee as an excuse in raising interest rates to customers.
“Critically, our highly-regarded financial regulators have explicitly advised that removing the Guarantee will not materially affect banking sector funding costs.” Mr Swan Said.
“So there will be absolutely no justification for any bank to raise interest rates beyond any future Reserve Bank movement, given banks’ interest margins are back above pre-crisis levels.”
“The banks and other lenders have so far paid around $1.3 billion for the use of the Guarantee, and will pay around $5.5 billion over its full life.”
“The Guarantee has also been vital in helping to support banking competition by offering funding certainty to Australian non-major ADIs, who used it to raise over $65 billion in cheaper funding.” Mr Swan said.
