Questions & Answers about the Guarantee on Deposits
- Why did the Australian Government introduce the Guarantee Scheme for Large Deposits and Wholesale Funding?
- What was the position up until 27 November 2008?
- What were the arrangements from 28 November 2008?
- How did the guarantee for large deposits work?
- What deposits and institutions were covered?
- What is the level of the fee?
- Who pays the fee?
- What is the timing of the fee?
- Who should depositors contact for more information?
- Who should ADIs contact for more information?
1. Why did the Australian Government introduce the Guarantee Scheme for Large Deposits and Wholesale Funding?
On 12 October 2008, the Australian Government announced temporary arrangements to enable the provision of a guarantee for the deposits and wholesale funding of Australian deposit-taking institutions.
In the lead up to this announcement, developments in international wholesale funding markets were restricting the ability of financial institutions both here and overseas to access funding, with potentially serious implications for liquidity and lending activity.
To address these pressures, the Government guarantee arrangements were designed to promote financial system stability in Australia, by supporting confidence and assisting authorised deposit-taking institutions (ADIs) – banks, building societies and credit unions - to continue to access funding at a time of considerable turbulence. They were also designed to ensure that Australian institutions are not placed at a disadvantage compared to their international competitors that could access similar government guarantees on their wholesale funding.
2. What was the position up until 27 November 2008?
Up until 27 November 2008, deposits in eligible ADIs - including banks, building societies and credit unions - were guaranteed by the Australian Government without charge. The guarantee of deposits was implemented by the Financial Claims Scheme, which was enacted into law in October 2008.
3. What were the arrangements from 28 November 2008?
Under the Financial Claims Scheme total deposit balances up to and including $1 million per customer held in an eligible ADI are covered without charge. No application is required for coverage under the Financial Claims Scheme. Coverage under the Financial Claims Scheme remains available and is not affected by the closure of the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding (the Guarantee Scheme) to new liabilities.
For customers with total deposit balances over $1 million, at a single ADI, a guarantee was available on that portion of their balances over $1 million under the Guarantee Scheme subject to an approval process and other conditions, including the payment of a monthly fee by the ADI on the amounts guaranteed. The $1 million amount applied even if the deposits were spread across multiple accounts in the same institution.
The Financial Claims Scheme is estimated to cover the entire deposit balances of over 99 per cent of depositors, as most depositors have balances less than $1 million. Those depositors whose total balances at a single institution exceeded $1 million had $1 million of such deposits covered by the Financial Claims Scheme, with the option of having the amount in excess of $1 million guaranteed under the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding.
Separate arrangements applied for deposits with foreign bank branches - see Foreign Bank Branches.
The Guarantee Scheme closed to new liabilities on 31 March 2010. Existing liabilities will remain covered until maturity (in the case of term deposits) or until October 2015 (in the case of at call deposits) – see the Guarantee Scheme Closure Q&A.
4. How did the guarantee for large deposits work?
Under the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding, eligible ADIs could apply to the Scheme Administrator to be able to offer guaranteed large deposits. It was up to individual ADIs whether they chose to apply for this approval to offer guaranteed large deposits.
Having received the necessary approval, an eligible ADI could then offer guaranteed deposits to its customers whose total deposit balances exceeded $1 million. Customers were under no obligation to have the guarantee apply to that portion of their total deposit balances over $1 million, should the ADI holding their account offer a guarantee.
The ADI is obliged to pay the Scheme Administrator a fee based on the value of deposits it has covered by the guarantee. The fee only applies to the amount of each customer's total deposits above $1 million that is guaranteed.
5. What deposits and institutions were covered?
Only deposit products provided by ADIs supervised by APRA were eligible to be covered. A listing of eligible institutions is at Schedule 1 of the Scheme Rules. Separate arrangements applied for deposits with foreign bank branches – see Foreign Bank Branches.
Deposit products included all conventional deposits, including on-line savings accounts, call accounts and term deposits. For a non-exhaustive list of sample accounts – see Sample Accounts. ADIs had to apply to have specific deposit products covered under the Guarantee Scheme.
Further information on the coverage of the guarantee is in the Scheme Rules.
6. What is the level of the fee?
The same fee schedule currently applies to an ADI's large deposits as to its wholesale funding.
The fee depends on the credit rating of the ADI, with higher rated institutions paying a lower fee to access the Government guarantee.
The same fee applies regardless of the term of the deposit.
| Credit Rating | Fee per annum |
|---|---|
| AAA to AA- | 70 basis points (0.7 per cent) |
| A+ to A- | 100 basis points (1.0 per cent) |
| BBB+ and below and Unrated | 150 basis points (1.5 per cent) |
7. Who pays the fee?
The fee is payable by the ADI, based on the value of deposits that are subject to the guarantee. It is only payable on that portion of a customer's total deposit balance over $1 million that is subject to the guarantee.
While it is up to each ADI to determine the arrangements it makes with its customers, including whether and to what extent it passes the fee on to customers, it is expected that where an institution offers both guaranteed and non-guaranteed deposits, the difference in interest paid to the customer will reflect the guarantee fee it must pay.
8. What is the timing of the fee?
The fee applies from 28 November 2008 and is paid by the ADI monthly in arrears.
9. Who should depositors contact for more information?
Depositors whose deposit balances are less than $1 million are automatically covered by the free guarantee on the deposit.
Depositors with total deposit balances above $1 million at a single institution should contact their ADI for more information on the arrangements the ADI has made regarding the guarantee. The arrangements for depositors after 31 March 2010 are set out at the Guarantee Scheme Closure Q&A.
A listing, by institution, of the deposits that have been approved for access to the Government guarantee is at Guaranteed Liabilities.
10. Who should ADIs contact for more information?
Eligible ADIs should review the Scheme Rules and Application Documentation.
Eligible ADIs wishing to ask questions in relation to the administrative arrangements can contact
Scheme Administrator
Australian Government Guarantee Scheme for
Large Deposits and Wholesale Funding
GPO Box 5367
SYDNEY NSW 2001
Toll Free: 1800 013 806
E-mail: administrator@guaranteescheme.gov.au