Australia and New Zealand announced a blanket guarantee to all bank deposits today in a move likely to raise pressure on other economies to do the same, amid a crisis of confidence in the global financial system. The two neighbours, both dominated by Australia's four major lenders, had portrayed themselves as having strong bank systems, especially Australia whose government and regulators gave repeated assurances it was well placed to weather the storm.
But Australian prime minister Kevin Rudd called a news conference today to say his government would guarantee Australia's entire deposit base of A$600-A$700 billion (Dh1.42-Dh1.65 trillion) for three years and guarantee wholesale bank funding. "We are in the economic equivalent of a national security crisis, and the challenges are great," Mr Rudd said. He referred to recent moves by other economies, such as Britain, Germany and Ireland, to extend guarantees or state aid to their banking systems and said Australian banks could be disadvantaged if his government failed to act.
"I don't want a first-class Australian bank discriminated against because some other foreign bank, which has a bad balance sheet, is being propped up by a guarantee by a foreign government," Mr Rudd added. The country's top four lenders are: National Australia Bank, Australia and New Zealand Banking Group, Commonwealth Bank and Westpac Banking Corp. The New Zealand prime minister Helen Clark announced her deposit guarantee scheme moments later, though she gave no time frame.
"Our government has agreed to implement a deposit guarantee scheme which will provide New Zealand depositors with additional confidence," Ms Clark told broadcaster TVNZ. The New Zealand scheme charges a guarantee fee of 10 basis points a year for institutions with deposits exceeding NZ$5bn (Dh10.9bn). Both countries said their guarantees should not be taken as a sign of weakness in their banking systems.
Mr Rudd quoted local regulators as saying bank finances remained in good order. "Right now, the balance sheets look great," he told reporters. "Our banks and our financial institutions are in first-class financial order. "This measure puts our banks on a similar footing to other banking systems around the world." Australia would also make an extra A$4bn available for mortgage-backed securities market to help maintain liquidity for non-bank lenders, Mr Rudd said, adding that the measures were part of an international response to the crisis.
Paul Xiradis, managing director of fund manager Ausbil Dexia, said the moves by Australia and New Zealand just made it more likely that other economies would have to do the same, or risk being overlooked by investors shopping around for security. "The government is not reacting because it needs to, it's being proactive to make sure it takes a positive step," he said. "It is likely that all government's will do so and this step by the Australian government is simply aimed at ensuring that everyone is on an even keel."
There was no threat to Australian deposits before today's announcements, according to the Australian Bankers' Association chief executive David Bell. "But if it does give people extra confidence then this must be viewed as a good thing," Bell said. Mr Rudd said his government was in close contact with other nations, including the G-20, and coordinated action was crucial. *Reuters