Bank guarantee to be withdrawn: Swan February 7, 2010 - 1:39PM AAP
The federal government will withdraw its guarantee for bank deposits and wholesale funding, Treasurer Wayne Swan has announced.
The withdrawal would begin on March 31, Mr Swan said on Sunday.
He said the government was acting on the advice of the Council of Financial Regulators.
The announcement does not affect the Financial Claims Scheme, which will give consumers certainty over deposits of up to $1 million until the cap is reviewed in October 2011.
Mr Swan said the guarantee scheme for large deposits and wholesale funding had stabilised the Australian economy, while others collapsed under the weight of the global financial crisis.
"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 in a statement on Sunday.
Mr Swan said Australian banks and other lenders had so far paid around $1.1 billion for the use of the guarantee and will pay around $5.5 billion over its full term.
Without the guarantee, Australian banks would have lent less and interest rates for borrowers would have been higher, leading to lower growth and higher unemployment, Mr Swan said.
The guarantees were put in place in October 2008 when the global financial crisis reached its peak, just after the collapse of US investment bank Lehman Brothers and at a time when banks were struggling to raise funds on global markets.
The federal government has previously said it would leave its bank deposit guarantee in place for three years and would look at the term funding guarantee for banks when global financial conditions normalise.
Mr Swan said the Council of Financial Regulators advised him that because of improved bank funding conditions, the guarantee was no longer needed.
"Importantly, our regulators explicitly advise that removing the guarantee will not materially affect banking sector funding costs," he said.
The council is made up of the heads of the Reserve Bank, Treasury, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
Mr Swan also announced the end of the state and territory borrowing guarantee.
The central-bank administered scheme started last July.
It temporarily guaranteed debt raisings by the states, which had been struggling to raise money on financial markets for crucial infrastructure projects.
The guarantee will be closed to new issuance on December 31, 2010.
"The longer withdrawal period ... is needed for states to establish liquidity in new unguaranteed bond lines," Mr Swan said.