(9 February 2010 – Australia) The Australian government has said that its wholesale funding guarantee is no longer needed and will dissolve at the end of March this year.The guarantee, which is expected to earn the government around A$5.5 billion in fees by the time it ends, was implemented in October 2008 to assist financial institutions in gaining funding from overseas.
Treasurer Wayne Swan said that the guarantee was one of the most important factors in Australia’s economic recovery and without the guarantee, Australia’s banks would have lent less and interest rates for borrowers would have been far higher.
This would have led directly to lower growth and more households losing a bread winner right across the country, Mr Swan added.
Mr Swan has warned banks of the wrath of the Australian people and government if they choose to increase interest rates as a result of the guarantee’s withdrawal.
If any major bank were to attribute some move above the Reserve Bank rate to a decision such as this, they would be wrong to do so, Mr Swan said.
The government said that the guarantee for deposits under A$1 million will remain in place until it is reviewed in October next year and also announced its intentions to withdraw the guarantee for state and territory borrowings at the end of 2010.