ANZ Adds Yet Another Voice To Growing Chorus To End Sovereign Guarantee Scheme

Post by Sharat on August 5, 2009 · Under Australian Economy, Business News · Comment 

Big Four lender ANZ Banking Group has added its voice to the growing chorus of calls for the government to either end the sovereign guarantee on wholesale funding and retail deposits entirely or at least overhaul the policy.

ANZ in a submission to the Senate on Monday,  said it believes the deposit guarantee should be modified from its current form, and a new scheme should be introduced with a lower cap on the maximum amount of deposit guaranteed by the Federal Government.

During its submission,  ANZ said that ceasing the scheme without some change to the retail deposit component may result in market distortions.

“ANZ believes that the deposits guarantee should be replaced by a financial claims scheme with a lower cap as originally proposed by the government,” ANZ’s head of government and regulatory affairs, Jane Nash said.

The Federal Government claims that under the current scheme deposits of up to $20,000 would be insured by the Government in the event of the failure of an Australian bank. ANZ which has been a vocal critic of the deposit guarantee, has argued that the amount covered by the Government should be reduced.

Mike Smith ANZ’s chief executive last month said he believed that Australian financial institutions would begin to wean themselves off the use of the sovereign guarantee on wholesale funding over the next few months.

“I think we’ll see this happen in the next few months, as spreads between sovereign guaranteed debt and bank debt narrow to 70 basis points or less.” Mr. Smith said.

Mr. Smith’s comments reflect comments made by his counterpart at National Australia Bank, Cameron Clyne. Mr. Clyne has said that governments and regulators globally need to move away from a system based on sovereign guaranteed debt issuance, but must do so in coordinated manner, due to the fragility of the global financial system.

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