David Bradbury (Lindsay, Australian Labor Party) Share this | Hansard source

He would do well to take the member for Aston’s comments to heart and take my advice on this matter. Can I say in relation to the threshold of $1 million that, if you listened to the shadow Treasurer, you would come to the view that this is part of a one-off decision taken by the government without any reference to the advice of the key regulators. I refute entirely the suggestion that the government acted without the total support of the key regulators or that it did not act upon their recommendations. The Governor of the Reserve Bank is a member of the Council of Financial Regulators and, acting upon the advice of the Council of Financial Regulators, the government made its announcement on 12 October.

I draw the attention of the House to a further announcement made by the Treasurer on 24 October, when the Treasurer enunciated the reasons for the slight shift in the approach towards the $1 million threshold. The Treasurer said:

Today the Prime Minister and I received advice from the Council of Financial Regulators—

and of course we know that on the Council of Financial Regulators we have the Reserve Bank Governor, the Secretary to the Treasury, the Chairman of APRA and the Chairman of ASIC—all the key regulators. So acting upon that advice:

… the Government has decided that a threshold of $1 million be implemented, over which a fee will be charged to receive the benefits of the deposit guarantee.

Importantly, it goes on to say:

This fee will ensure the deposit and wholesale funding guarantees apply in a consistent manner for larger investments, for which deposits and securities are interchangeable. In particular, it will ensure that the deposit guarantee does not provide disincentives for market participants to operate in short-term money markets.

So, clearly there is a very reasonable justification here for the threshold. Acting upon the advice of the Council of Financial Regulators, the government has recognised that we do not want to be making investments in the short-term money markets unattractive. We do not want to be providing disincentives in that particular area of the market by providing an unlimited guarantee beyond the $1 million without that guarantee having at its core at least the requirement for a fee to be charged in return for that guarantee and that that fee be levied in a comparable way to the way in which it would apply to deposits at that level. So clearly what we have here is sensible, reasonable policy based on the advice of the regulators—contrary to what those on the other side say.

In relation to the scope of the guarantee, I want to turn my attention to its coverage, because of course the government has already implemented the Financial Claims Scheme, which has protected deposits held by authorised deposit-taking institutions—Australian incorporated ADIs—up to the value of $1 million. This guarantee scheme will, for a fee, protect deposits above $1 million. It will also protect all deposits with Australian branches of foreign banks, once again for a fee. It will also protect wholesale funding for Australian incorporated ADIs—and that is both short-term and long-term wholesale funding—and will provide a guarantee in respect of short-term funding for foreign bank branches where funds are raised from Australian residents.

In terms of how ‘short-term’ and ‘long-term’ are classified, short-term are those liabilities with initial maturities of up to 15 months and might include such instruments as bank bills, certificates of deposit, commercial paper and certain debentures. In relation to longer-term liabilities, we are talking about liabilities with terms of maturity of 15 to 60 months, which would include bonds, notes and certain debentures. This guarantee will apply to these instruments whether they are offered domestically or in international markets. It is important to acknowledge that.

When all these measures are taken into account, what we see is a package of measures designed to restore certainty and confidence to our financial markets. Since the announcement of the government back on 12 October, we have already seen some improvements in the unclogging of the arteries of the international financial system. We are starting to see more interbank lending at more competitive rates. We are seeing a narrowing of spreads. All of these factors have resulted from the decisive action that the government took in making its announcements on 12 October. The challenge for those on the other side is: do they support these measures?

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