Gov guarantee on last legs
(3 August 2009 – Australia) As Australian banks begin to move forward from the global financial crisis, recent comments suggest that the bank funding guarantee will soon be on the way out.
The Reserve Bank of Australia (RBA) Governor, Glenn Stevens, recently told a lunchtime audience that banks in the US and Europe have moved away from using government guarantees to raise funds.
Given this, it would make sense for Australian banks, which have accounted for 10 percent of global issuance of government-guaranteed bank debt over the past nine months, to step up their efforts to do likewise, Stevens said.
Assistant Treasurer, Senator Nick Sherry said that it was time for Australian banks to reduce their dependence on the scheme.
The way the bank guarantee works at the moment is over time, the banks reduce their dependence on the guarantee, he told ABC Television.
However, Senator Sherry said Australia would be unlikely to withdraw its bank deposit guarantee if other nations continued to prop up their banking sector.
Sherry added that the way in which the guarantee phases out as a policy has got to be done at an international level.
In providing a possible scale back solution, Glenn Stevens said that countries that issued very generous or even unlimited guarantees of deposits will want to make sure such steps truly were emergency measures, by scaling them back to a more sustainable set of deposit insurance arrangements.
Likewise, it would be desirable that guarantees for wholesale raisings in capital markets lapse into disuse as conditions improve, Stevens said.
To date, in excess of US$800 billion of government-guaranteed debt has been issued in public markets by banks around the world.
Given this, it would make sense for Australian banks, which have accounted for 10 percent of global issuance of government-guaranteed bank debt over the past nine months, to step up their efforts to do likewise, Stevens said.
Assistant Treasurer, Senator Nick Sherry said that it was time for Australian banks to reduce their dependence on the scheme.
The way the bank guarantee works at the moment is over time, the banks reduce their dependence on the guarantee, he told ABC Television.
However, Senator Sherry said Australia would be unlikely to withdraw its bank deposit guarantee if other nations continued to prop up their banking sector.
Sherry added that the way in which the guarantee phases out as a policy has got to be done at an international level.
In providing a possible scale back solution, Glenn Stevens said that countries that issued very generous or even unlimited guarantees of deposits will want to make sure such steps truly were emergency measures, by scaling them back to a more sustainable set of deposit insurance arrangements.
Likewise, it would be desirable that guarantees for wholesale raisings in capital markets lapse into disuse as conditions improve, Stevens said.
To date, in excess of US$800 billion of government-guaranteed debt has been issued in public markets by banks around the world.
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