The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding

The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding (the Scheme) was announced by the Prime Minister on 12 of October 2008, similar announcements in a number of other countries such as New Zealand Government, to guarantee certain deposits and wholesale funding of qualified authorised deposit taking institutions (ADIs) which are subject to prudential regulation by the Australian Prudential Regulation Authority (APRA) in accordance with international standards. Both governments also introduced unlimited wholesale bank debt funding guarantee schemes available for new borrowings. These schemes charge risk based fees with the New Zealand charges being generally higher and more risk sensitive (including higher fees for longer maturities) (Davis & Boyle 2009). The purpose of the Scheme is to maintain the stability of financial system and ensure the continued flow of credit during the extremely difficult circumstances in the global financial system. Furthermore, it sustains and aids ADIs to continue to access funding and to ensure that Australian institutions does not experience any difficulties compared to international competitors that can access similar schemes in other countries that have received similar government guarantees on their bank debt (English, 2009). This report examines the reasons for introducing such scheme and discusses the characteristics of the deposit and wholesale funding guarantee scheme.  
The Scheme will be applied to Australian owned banks, Australian ADI subsidiaries of foreign banks, credit unions and building societies (‘eligible ADIs’). Additionally, it will be valid to the foreign branches of eligible ADIs but not their foreign subsidiaries (The Economist, 2009).

Functions of the Scheme
To summarise the principles of the Scheme, it has four main points. Firstly, it can re-build the reliance and confidence among banks, investors and the public efficiently and effectively (RBA &...