Australia Removing Bank Funding Guarantee Scheme

February 8, 2010 Taxation in Australia

Two Australian FlagsThe Australian Government will soon cease to operate the Bank Funding Guarantee Scheme (BFGS), which aided the stability of the country’s financial institutions during the most significant global economic contraction since World War II.

Yesterday it was announced that from March 31st the Australian BFGS will be withdrawn, based on a recommendation from the Council of Financial Regulators. The scheme was established in October 2008 as a means of instilling a greater confidence in the Australian banking system by providing a guarantee on the deposits and wholesale funding of the banks. According to a statement by Wayne Swan, Treasurer of Australia, the country’s banks have always been highly-rated, not prone to risky activity, and highly capitalized, placing them in a better position than many institutions worldwide, and with improving economic conditions the scheme has become unnecessary. Any existing liabilities guaranteed under the BFGS will be covered to maturity for wholesale funding and term deposits, while all call deposits will apply for the scheme until October 2015. The Treasurer has announced that all authorized deposit-taking institutions will have access to the BFGS until March 24th 2010.

Throughout its life, the BFGS has supported non-major Australian banks in raising AUD32 million from the international credit markets. Wayne Swan has also said that without it Australia would have seen less lending and higher interest rates, adversely affecting its growth.

The Council of Financial Regulators, which placed the recommendation to remove the scheme, consists of figures from the Australian Reserve Bank, the Treasury, the Australian Securities and Investment Commission, and the Australian Prudential Regulation Authority.

Photo by StephenMitchell