Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Hansard source

The question asked by the honourable member provides me with the opportunity to inform the House of developments overnight, particularly in relation to an emergency summit of leaders in the 15-member euro zone presided over by the President of France, President Sarkosy. This goes of course to integrated measures on the part of the Europeans in response to the global financial crisis. At that meeting European leaders agreed to guarantee, for an interim period and on appropriate commercial terms, new debt issued by banks. President Sarkosy said:

Banks need to be loaned money. So that this confidence is restored, states will have the possibility to guarantee the loans that banks take out, guarantee them under different forms.

That reflects President Sarkosy’s position, reflecting in turn the combined position of the euro zone economies meeting in Paris overnight, Australian time. The German Chancellor, Angela Merkel, said that these measures:

… will allow markets to start functioning again, that was our aim. It is a strong message to the markets.

The House will be aware that the Australian government yesterday made a similar move. Our package includes a guarantee for term wholesale funding which formed the basis in part of my answer to the previous question, from the Leader of the Opposition. But the core rationale, apart from overall efforts to stabilise the global financial system, was this: to ensure that Australian banks were not going to be penalised in global credit markets as a consequence of the sovereign guarantees being provided by other governments, nationally, to their banks.

A critical challenge that we were presented with is this. Around the world there were a number of banks whose balance sheets were actually in very bad shape. As a consequence, governments in those countries acted in order to improve their reputational standing in global credit markets, and they did that by extending sovereign guarantees to the loan raising which those banks were engaged in. The problem that presented our banks was as follows. Despite the fact that our major banks had no problems on their balance sheets, despite the fact that they were registering strong profits and despite the fact that our regulatory authorities properly and entirely appropriately underpinned their continued strong position, the fact that sovereign guarantees were extended by foreign governments to their banks, often in bad credit state, meant that prospectively we faced a problem where Australian banks would be discriminated against in the global financial market. The direct consequence of all that is the flow-through in the availability of commercial credit to the general credit activities of Australian banks within the domestic market, not just in the mortgage sector but crucially also in the business sector, in the commercial sector of the Australian economy. The attitude that I took as Prime Minister was that I was not prepared to stand idly by and allow that to happen because the roll-through consequences of those actions as they affected Australian banks long term would in turn affect households and in turn affect businesses. That is why we acted.

The second set of measures we took yesterday related to the protection of depositors under the financial claims scheme. Our attitude as a government was that the time had come to guarantee all deposits, whatever their size, in the Australian banking institutions for a period of three years—that is, to guarantee deposits, whether they are in banks, whether they are in building societies, whether they are in credit unions, to ensure that individual Australian families, that pensioners, that carers, that small businesses should have absolute confidence in the robustness of these financial institutions. It was the right thing to do. It was the right thing to do also because we saw again around the world various governments, in far, far more difficult situations than we find ourselves in Australia, acting in this regard. And as a consequence again this was potentially going to have an impact on the way in which international credit markets looked at Australian financial institutions. Therefore, it was necessary not just to allay the concerns and anxieties of individual deposit holders but also to ensure, in terms of the reputational status of our banks worldwide, that that factor would be removed from any doubts on the part of global credit-lending institutions. So, again, as Prime Minister of the country the view that I took was that I was not prepared to stand idly by and allow the concerns of households, of working families, of pensioners and of carers about the banks to go unaddressed. That is why we acted.

A third measure which the government announced yesterday goes to the availability of funding for non-authorised deposit-taking institutions. Further to the Treasurer’s announcement in September, the government has decided to direct the Australian Office of Financial Management to purchase an additional $4 billion in residential mortgage backed securities. The government has been monitoring the market closely and has determined that an additional $4 billion in funding is required for the purchase of residential mortgage backed securities from non-ADI lenders, those being lenders who are not banks, building societies or credit unions. This will be done by the Australian Office of Financial Management. This will benefit Australia’s mortgage market and ensure that this sector of the lending market has access to funding for their future operations.

The reality is that the global financial crisis in recent days has entered into a new and dangerous phase, with real impacts for growth and real impacts for jobs both in Australia and abroad. Therefore, the government have taken the view that the surplus that we spent a lot of time and a lot of effort putting aside in the May budget, putting aside for tough times, is there to be used to deal with these tough times. The purpose of the surplus is to deal with the tough times ahead and my message to the nation today is that those tough times have arrived. Therefore, the government remain determined to deploy that surplus intelligently to deal with the long-term support of positive economic growth in Australia and to deal with the necessary supports for households.

We are well positioned to weather this crisis. We have taken the necessary steps yesterday to assist in continuing to stabilise the Australian financial system and to ensure that that stability which we already have will be maintained into the future, given what is happening in the global marketplace. But beyond that, this global financial crisis and the entering into of this new and dangerous stage and its impact in the real economy around the world on growth and jobs will have an impact in Australia. We are glad on this side of the House that we took the measures necessary to set aside a surplus for the period ahead—a significant surplus, a surplus which is designed to deal with tough times. Those tough times have come and we are well prepared to act in anticipation of them.

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