Prime Minister Kevin Rudd today announced that the Australian Government is guaranteeing all deposits in Australian banks, credit unions and building societies for 3 years. Reports value this guarantee at about A$700 Billion. The guarantee is irrespective of the size of individual deposits.
Financially, this guarantee will help ensure that financial institutions continue to have a significant deposit base, desirable from a prudential perspective; that they can continue to meet the prudential regulations, and can lend to each other with more confidence. This inter-bank lending is important for fiancial institutions - it enables them to continue to lend to customers - and will help to maintain the economy.
The politics of this are:
- Other governments, including the USA, Britain, European countries, and Iceland have already made similar guarantees. It ensures that Australian deposits will remain in Australia.
- Last week, Opposition Leader Malcolm Turnbull was spruiking “his” idea of guarantees on bank deposits up to A$100,000. From a a free-market investment banker, it was pure political populism. Kevin Rudd’s proposal means that he has not only trumped the Opposition by including credit unions and building societies; but also ensures that he cannot be out-trumped on the $-amount. Late this afternoon, Mr Turnbull said that “Mr Rudd and I are very much of the one mind on these measures“. This is just a “me, too” statement: he knows Kevin Rudd out-flanked him on this issue, and doesn’t want to be left behind.
- Prime Minister Rudd is also seen to be taking decisive action to protect Australians’ savings.
All in all, this deposit guarantee is a good move for financial institutions, with a side serving of political advantage for Kevin Rudd.