International Law

Treasury provides further details on the wholesale funding and deposit guarantees

Treasury has updated its guidance on the Deposit and Wholesale Funding Guarantees Design and Operational Parameters and provided a list of Eligible Accounts and Institutions.

The changes to the operational details include the following clarification:

• For deposits of or under $1 million, the guarantee will be free. For deposits over $1 million an eligible institution will be able to obtain coverage, in return for a fee. For example, if a person holds $1.5 million in deposit accounts in an ADI, the first $1 million would be guaranteed for free and a fee would be payable to obtain the guarantee for the remaining $500,000.
• The threshold applies per depositor per institution. That is, the threshold applies to the total amount of funds held by a depositor in (separate) deposit accounts with an ADI.
• The guarantee will not apply to products that are not deposit products with eligible ADIs. It does not apply to market-linked investment products such as share portfolios or managed funds, as these products provide an incentive for investors to pursue higher returns through investments that may involve greater risks, including the risk of making capital losses. It will also not apply to retirement income products including annuities.
• The guarantee will not apply to products offered by non-ADI entities, including non-ADI subsidiaries of Australian ADIs.
• The fees will be levied on a monthly or quarterly basis depending on the liability.
• The fee scale is on a per annum rate.
• After 28 November 2008, deposits over the $1 million threshold and wholesale funding will only be guaranteed if an application has been made to the RBA and the relevant fee has been paid.
• In respect of foreign bank branches, the wholesale funding guarantee will be extended to APRA-regulated foreign bank branches in respect of their short term wholesale funding raised from Australian residents with maturities up to the end of 2009. This will be available at the same premium as applying to eligible 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; however, there will be no fee-free threshold.
  Access to these guarantees will be subject to the following conditions:
  ? The amount guaranteed is limited to 110 per cent of the combined value of short-term wholesale liabilities and deposits held in respect of Australian residents as at 24 October 2008;
  ? Branches cannot use guaranteed liabilities to support their parents; and
  ? The guarantee is only available if the liabilities are not guaranteed by the home authorities and the branch provides a statement from the home regulator that the parent bank is meeting relevant prudential requirements.

Full post as published by Australian Regulatory Compliance Review on October 28, 2008 (boomark / email).