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Guarantee scheme capped but fund managers remain excluded

Staff Reporter 4 minute read

The government has responded to calls to put a cap on its deposit guarantee scheme but is still under pressure to extend the guarantee to mortgage funds and cash management trusts.

On Friday federal treasurer Wayne Swan said the government would introduce a $1 million threshold on the scheme, over which a fee will be charged to receive the benefits of the deposit guarantee.

As of the 28 November banks will have to pay the government a fee of between 0.7 per cent and 1.5 per cent for the privilege of the government guarantee for their wholesale funding.

The decision follows concerns that the guarantee was dislocating domestic money markets by directing funds away from institutions not covered by the guarantee.

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Last week a range of institutions including Challenger, Axa, and ING were all forced to freeze redemptions on their funds.

Those institutions remain excluded from the guarantee and are calling on the government to reconsider its decision.

Mr Swan said the secretary to the treasury, chairman of Australian Securities and Investments Commission and other financial regulators were all assessing relevant actions that might be appropriate to foster the ongoing health and vitality of the sector.

Published: 27-10-08

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