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• MPA Online

The complete withdrawal of the govt guarantee of wholesale funding, announced by the Treasury yesterday, will make it harder for smaller banks to compete with the majors.

Bank of Queensland (BoQ) CEO David Liddy called for a staged withdrawal of the guarantee, otherwise smaller banks would be penalised.

Yesterday, federal treasure Wayne Swan said the government's guarantee scheme for large deposits and wholesale funding would close on 31 March 2010, with the last day to access the scheme being 24 March.

Liddy told the ABC the scheme had put the BoQ in an uncompetitive position throughout the period it had operated.

"I think it was unintended initially but the point I want to make is that we are an alternative to the major banks," he said.  "We have continued to lend throughout this period but at the end of the day, we've come back on our share."

Liddy said guarantee had cost the bank $20m in profit and said the extra costs in raising funds have so far been absorbed by the bank.

His view of the impact of the scheme was not shared by the treasure who said the guarantee had been "critical in helping to support competition in the banking sector throughout the global financial crisis which hit smaller lenders particularly hard".

"It's offered funding certainty to more than 150 deposit-taking institutions, including 11 building societies and 110 credit unions.

Swan said the guarantee had allowed "non-major Australian banks" to raise over $32bn in funding from international credit markets, while the government's direct investment of up to $16bn in high-quality, AAA rated RMBS had helped smaller "lenders keep lending at competitive interest rates and putting competitive pressure on the big banks".

Related stories:

Govt withdraws bank guarantee - The Rudd government is withdrawing the guarantee scheme for large deposits and wholesale funding on the 31 March.

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