International Law

Deposit guarantee changes announced

The deposit guarantee scheme for deposits in banks, building societies and credit unions and other ADI's announced by the Government on 12 October has been changed.

The Treasurer announced on 24 October that the Government has decided that a threshold of $1 million be implemented, over which a fee will be charged to financial institutions to receive the benefits of the deposit guarantee.

The change was made to ensure that the deposit guarantee does not provide disincentives for market participants to operate in short-term money markets.

The fee will apply from 28 November 2008. Up until that date all deposits and wholesale funding eligible for the guarantee arrangements will be guaranteed without charge. After that date, deposits over $1 million and wholesale funding will only be guaranteed if the relevant fee is paid.

Fee for wholesale funding

A single rate fee will be payable by financial institutions for all guarantees of maturities for eligible securities up to 60 months, with a different rate applying to eligible institutions based on their credit rating.

The wholesale guarantee fee arrangements to be reviewed on an ongoing basis and revised if necessary.

Foreign bank branches

The Treasurer also announced that foreign bank branches will be able to access the guarantee for short-term wholesale funding raised from Australian residents at the same premium that applies to other ADIs. Foreign bank branches will also be able to access the deposit guarantee in respect of domestic deposits held by Australian residents on the basis of the fee schedule, but with no fee-free threshold. This arrangement will be subject to strict limits and requirements to ensure the funding is used only for their Australian operations.

Full post as published by Australian Regulatory Compliance Review on October 24, 2008 (boomark / email).