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Government could u turn on deposit guarantee

Staff Reporter 4 minute read

The government may consider capping its unlimited bank deposit guarantee scheme amid a political storm that broke in federal parliament yesterday.

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Removal of the cap would be intended to stem the flow of cash leaving the institutions that are not covered by the scheme.

Treasurer Wayne Swan yesterday said the government was considering the application of a fee on deposits worth more than $1 million, The Australian Financial Review reported.

However industry members excluded by the guarantee have called for it to be dropped as low as $250,000.

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The government’s backflip follows a political uproar that emerged this week following word that the government had implemented the unlimited guarantee despite a RBA warning of the dangers it could pose.

However in a speech yesterday RBA governor Glenn Stevens said he supported the government’s initiatives to protect the system from the international financial crisis.

"Steps in these directions, in the context of what other countries were doing, were sensible and the RBA supported them," Mr Stevens said.

"The RBA is working with our colleagues in the Treasury on the details of the Australian arrangements, including on how to maintain continued healthy functioning of Australia's short-term money markets," he said.

Published: 22-10-08

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