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Or maybe the money fund lobby is in control.

As always, the liability side of banking is not the place for market discipline.

Australia Removes Funding Guarantee Even as Economy Is Fragile

By Shani Raja

Feb. 8 (Bloomberg) — The Australian government is withdrawing a guarantee on large deposits and wholesale funding that helped banks access credit after the global financial crisis, even as the economy overall remains “fragile.”

The program is being withdrawn on March 31 on the advice of the Council of Financial Regulators, Treasurer Wayne Swan said in a news release yesterday. The removal of the guarantees indicates the nation’s banks are recovering from the impact of the credit crunch.

“This is a definite milestone on the road to recovery from the global financial crisis,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “It’s an indication the worst is over and that banks don’t need a government guarantee to legitimize them as deposit-taking entities.” A plan that gives certainty over deposits of up to A$1 million ($870,000) won’t be affected, Swan said.

The bank guarantees were introduced in October 2008 after the collapse of Lehman Brothers Holdings Inc., which roiled financial markets worldwide and helped precipitate a global recession. They enabled Australian banks to raise funds on international markets, helping lenders avoid the sorts of bankruptcies that hampered the U.S. financial system.


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3 Responses

  1. G’day. As a first-time visitor, I needed a break from trying to integrate the case made in “From Scott Brown’s Facebook page” and the link to this item captured the interest of an Australian.

    Just checking on the points you make here…
    para 1. Is the inference to be drawn that withdrawal of the guarantee is premature? And what’s the definition of “money funds”?
    para 2: Can you explain why withdrawal of the guarantee is to be regarded as an imposition of “market discipline”, rather than a restoration of “market competition”.

    Probably the answers to these questions are part of the understandings of regular readers of your blog, but like I saw I’m a newbie.

    Thanks
    Malcolm

  2. Hi,

    It’s about the liability side of banking not being the place for ‘market discipline’ with a non convertible currency and a floating exchange rate.

    See my various proposals for the banking system on this website, thanks.

    if you can’t find them let me know and i’ll get them too you

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