The government’s unlimited bank deposit guarantee has come under fire for creating serious dislocation in the national financial system.
The scheme which was set up to protect small retail depositors has also seen millions of dollars pulled by institutional investors from unguaranteed institutions and trusts into guaranteed deposits.
The Reserve Bank along with several investment banks has urged the government to cap the guarantee to prevent the situation from worsening.
According to The Australian, the RBA warned about the distorting affect of the unlimited guarantee since before its inception earlier this month.
Investment banks also voiced their concerns in a letter to the government on Friday warning that their exclusion from the guarantee scheme would limit their ability to provide what has been a significant and competitive source of lending, particularly to corporate Australia, The Australian reported.
The letter was signed off by chief executives of JPMorgan, UBS, Deutsche Bank, Societe Generale, BNP Paribas and the Bank of Scotland.
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