SCC Chartered Accountants

PM gives savings guarantee

The Prime Minister has announced the Australian Government will guarantee all deposits of Australian banks, building societies and credit unions and Australian subsidiaries of foreign-owned banks.

The guarantee applies to all types of deposits, regardless of the type of account through which the deposit is made. For example, it includes savings accounts, passbook accounts, cheque accounts, pensioner deeming accounts, term deposits, mortgage offset-accounts, farm management accounts, first home savers accounts and retirement savings accounts.

Both retail and wholesale deposits are covered by the guarantee.

The guarantee applies to deposits held by all types of legal entities in Australia, including individuals (including joint accounts), partnerships, businesses, trusts and government entities.

The guarantee applies to deposits denominated in any currency.

The guarantee does not apply to deposits held in branches of foreign banks in Australia.

These deposits are not subject to the depositor protection provisions of the Banking Act 1959.

The guarantee will operate for a period of three years from 12 October 2008 without a cap on the guarantee.

The Government will review the guarantee cap in 3 years.

Guarantee of term funding for institutions

The Australian Government will also guarantee eligible wholesale term funding of Australian-owned banks, Australian subsidiaries of foreign owned banks, building societies and credit unions.

The Government will offer the guarantee in return for a fee in respect of eligible non-deposit debt obligations of Australian ADIs and foreign subsidiary banks operating in Australia.

The facility will be withdrawn once market conditions have normalised.

The guarantee on wholesale borrowing will be made available, on application, for new and existing term debt issuance out to 5 years (60 months). The guarantee will be available for eligible debt instruments issued in all major currencies.

The guarantee will not be available to foreign banks, including those with branches in Australia, or entities that are not APRA-authorised deposit-taking institutions. These latter entities are not subject to Australia’s prudential regulation regime.

Lenders that are not APRA-regulated will have access to the Government’s complementary initiative to invest an additional $4 billion in residential mortgage-backed securities (see below).

Purchases of RMBS from non-ADI lenders

On 26 September, the Treasurer announced the direction to the Australian Office of Financial Management (AOFM) to purchase residential mortgage-backed securities (RMBS) from a wide range of Australian lenders in initial tranches totalling $4 billion.

The Government has determined that an additional $4 billion in funding is required for the purchase of RMBS from Australian non-ADI lenders (those being lenders who are not banks, building societies or credit unions) by the AOFM.