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Global Crisis: Rudd guarantees all financial deposits

The Federal Government of Australia will guarantee all money deposits of any size for the next three years as a key step towards safeguarding the nation from the impact of the global financial crisis.

Prime Minister Kevin Rudd today said that local banks remained in first class shape but the global financial crisis was affecting confidence across the world, including in Australia.

Mr Rudd said Australia was better positioned than practically every other country to see its way through the crisis.

But, he said, the government had decided on three further measures to maintain continued stability of the Australian financial system.

The measures announced today would "unclog the arteries of the global financial system" which had dried up credit because of fears banks would fail, he said.

The Australian government will:-

  • Guarantee all term wholesale funding by Australian banks operating in international credit markets. This means anyone lending money to an Australian bank has an absolute assurance their money is safe.
  • Guarantee all deposits of any size in any financial institution for the next three years. The government originally proposed that be $20,000 or less.
  • Direct the Australian Office of Financial Management to purchase an additional $4 billion in residential mortgage backed securities. This will ensure the Australian mortgage market has access to sufficient funds for future operations.

Mr Rudd said many foreign banks, much less well run and regulated than Australian banks, were now guaranteed by their governments, placing local banks at a disadvantage when competing for funding on global markets.

"I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments in support of them," he told reporters in Canberra today.

"We must act now because other governments with weaker banks have moved to make those institutions more competitive than our stronger banks."

Mr Rudd said if the government was going to guarantee those lending to banks, it was only fair that the government protect Australian working families, carers, small businesses and all other depositors.

"The Australian government will guarantee all deposits whatever their size in all Australian banking institutions for three years - banks, building societies and credit unions," he said.

Mr Rudd said Australian banks would be on the same footing as other international banks.

He said in return for the guarantees, banks would have to pay an insurance premium.

"That will be levied at an appropriate rate determined between treasury and themselves, which will go to ensure that this is not simply a free gift from the government by way of a guarantee to the banks."

Mr Rudd said there would be bumps on the road ahead. "We are in the economic equivalent of a rolling national security crisis and the challenges are great," he said.

Source: AAP