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Second-tier banks disapprove guarantee change

Staff Reporter 3 minute read

Australia’s second-tier lenders have criticised the government’s proposal to level the fee structure of the wholesale funding guarantee.

The Bank of Queensland (BoQ) chief financial officer Ram Kangathran said the new structure would disadvantage the banks that expanded their lending portfolios during the financial crisis.

BoQ is currently lobbying the government for the removal of the insurance premium charged on past borrowings, so as not to disadvantage those second-tier banks that made use of the original wholesale funding guarantee.

Mr Kangathran told The Australian Financial Review that the government proposal disadvantages those institutions that cut back on lending during the GFC. He said the smaller lender could reduce mortgage rates within a month if the government were to level the guarantee’s pricing structure.

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“If you don’t give that same relief to the guys who’ve been funding mortgages so far, it then puts an unfair burden on those banks which continued to lend and grow their lending through the financial crisis,” Mr Kangathran said.

“[This] is against the government’s policy objective.”

On 12 October 2008, the federal government announced guarantee arrangements for deposits and wholesale funding of eligible banks.

Under the voluntary scheme, banks could obtain guarantees for deposit balances totaling over $1 million per customer and for wholesale funding liabilities.

Rather than announcing a date for the scheme’s withdrawal, the government is expected to set a timetable.

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