Gov guarantee now has conditions
(27 October 2008 – Australia) After declaring that all bank deposits would be guaranteed, the Federal Government has released further details and limitations after consultation with the Council of Financial Regulators.
On 12 October 2008, the Government announced it will guarantee deposits in Australian owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years.
The Government also announced a guarantee on wholesale debt securities issued by these same institutions, on application, and for a fee.
Based on the council's recommendations, the Government has decided that a threshold of A$1 million be implemented, over which a fee will be charged to receive the benefits of the deposit guarantee.
This fee will ensure the deposit and wholesale funding guarantees apply in a consistent manner for larger investments, for which deposits and securities are interchangeable.
The Government will adopt a single rate fee for all maturities for eligible securities up to 60 months, with a different rate applying to eligible institutions based on their credit rating.
For institutions with a AA credit rating, debt issues up to 60 months will attract a 70bp fee, for an A credit rating, a 100bp fee, and for BBB and unrated, a 150bp fee.
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.
Also, the guarantee does not apply to the non-prudentially regulated investment sector, which includes mortgage trusts, non-listed property trusts and debentures.
The Government also announced a guarantee on wholesale debt securities issued by these same institutions, on application, and for a fee.
Based on the council's recommendations, the Government has decided that a threshold of A$1 million be implemented, over which a fee will be charged to receive the benefits of the deposit guarantee.
This fee will ensure the deposit and wholesale funding guarantees apply in a consistent manner for larger investments, for which deposits and securities are interchangeable.
The Government will adopt a single rate fee for all maturities for eligible securities up to 60 months, with a different rate applying to eligible institutions based on their credit rating.
For institutions with a AA credit rating, debt issues up to 60 months will attract a 70bp fee, for an A credit rating, a 100bp fee, and for BBB and unrated, a 150bp fee.
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.
Also, the guarantee does not apply to the non-prudentially regulated investment sector, which includes mortgage trusts, non-listed property trusts and debentures.
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