Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Hansard source

I thank the member for Ballarat for her question. Yesterday the Prime Minister announced that the government would guarantee upon application term wholesale funding by Australian banks. This step will ensure that our banking institutions have the best possible access to global capital markets. We are all aware that developments in global financial markets over the past year or so have increased the difficulty for financial institutions to raise funds in those markets. There is no suggestion that the measure that the government has taken is in any way reflecting circumstances in Australia; it is a reflection of increasing difficulties in international markets that our banks and financial institutions face. In particular, it is a reflection of the fact that a number of other key governments around the world have taken steps of a similar nature that change the relative attractiveness of major financial institutions internationally for lending and therefore if we were not to take an initiative of this kind with respect to Australian financial institutions, notwithstanding that they are very strong, well capitalised and well regulated, it would place them at a significant disadvantage relative to other financial institutions competing for the same funding in global markets. We have seen in recent times the significance of this through increases in the price of borrowings for our financial institutions internationally flowing through to increases in market interest rates and therefore were the government not to take an initiative of this kind there is a serious concern that we would see that occur even further.

These measures are designed to ensure that Australian banks can continue to do their job. The banks will be charged a fee, negotiated specifically with them according to their circumstances, for access to this guarantee. The measures are critical to the Australian economy and to protecting Australia’s economy from the worst implications of the global financial crisis.

It is also important to note that there are significant institutions in our economy that engage in lending money, particularly for mortgages, who will not have access to these guarantees because they are not approved deposit-taking institutions. But they are significant players in the market. In particular, their activities are very important for sustaining competition in the mortgage market. In order to ensure that the playing field remains even and that competition remains strong, the government has also decided to make available up to $4 billion through the Australian Office of Financial Management to these institutions for borrowing for high-quality mortgage purposes for on-lending for high-quality mortgages.

As the Prime Minister has indicated, the government is also determined to provide a general guarantee for all bank deposits—all deposits in approved deposit-taking institutions—for a period of three years on top of the proposed legislation that is in the process of being pursued by the government to guarantee all deposits up to $20,000. Again, this initiative was taken by the government in response to similar initiatives occurring internationally. The key point about all this is that we are not immune from the implications of the international financial crisis. We have moved into a new and dangerous phase of this crisis. It is already impacting on jobs and growth in Australia and we can expect it to impact further.

Equally, the regulatory initiatives undertaken by governments overseas, by central banks overseas and by regulators overseas change the global environment in ways that Australia is affected by. We have already seen this with respect to the rules regarding short selling in the Australian stock market being changed in response to decisions being taken overseas, and similar logic applies in this case. Australia’s banks and financial institutions generally are well capitalised. They are strong, they are responsibly run, they are well regulated and they will remain so. It is very important to ensure that they are not disadvantaged and that Australian householders, homebuyers, workers and people generally are not disadvantaged economically by them being in a second-tier position relative to other banks, including significant banks that are much less robust than they are, in international capital markets. That is why the government have announced these initiatives, and we believe they will be very important in ensuring that we minimise the inevitable impacts of this new and dangerous phase of the global credit crisis.

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