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Guarantee Scheme for Large Deposits and Wholesale Funding

Post-implementation Review – The Treasury

On 12 October 2008 the Prime Minister announced a Government guarantee of the deposits and wholesale funding of Australian Deposit-taking Institutions (ADIs). Under the Government’s best practice regulation process a Regulation Impact Statement (RIS) for the proposals was required in 2008 but not prepared. Consequently, a Post-implementation Review (PIR) was required to be undertaken. The guarantee scheme covered (for a fee and on an opt-in basis) aggregate deposits of over $1 million per customer, per institution held with ADIs - provided the deposits were at call or with a term of up to 60 months. It also encompassed the guarantee of wholesale funding, comprised of a short-term wholesale funding guarantee (for securities with a maturity of up to 15 months) and a long-term funding guarantee (for securities with maturities of 15 months up to 60 months). The initiative closed to new ADI liabilities on 31 March 2010. The objectives of the guarantee scheme were to: restore ADIs funding access to the wholesale funding market; restore investors’ and depositors’ confidence in ADIs; stabilise the Australian financial system; and secure the credit flow to the Australian economy.  The PIR found that the guarantee scheme assisted:

  • ADIs in raising funds, with the data provided showing that ADIs raised approximately $43 billion and $75 billion guaranteed funds in December 2008 and January 2009 respectively;
  • in resorting confidence and financial stability as evidenced by the narrowing of selected credit spreads; and
  • in securing the credit flow to the Australian economy by providing a guaranteed source of funding to ADIs.

Consequently, the PIR concluded that the guarantee scheme met the Government’s objectives. The PIR was prepared by the Treasury and assessed as adequate by the Office of Best Practice Regulation.