Govt withdraws bank guarantee

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

Treasurer Wayne Swan announced the changes yesterday, adding that the guarantee will not materially affect banking sector costs.

The guarantee was first put in place in early October 2008 to support banks and keep credit flowing during the height of the global financial crisis.

While Australian banks are highly rated, well-capitalised and did not engage in risky lending as some other countries, the guarantees were still vital.

The withdrawal does not affect the Financial Claims Scheme which guarantees deposits of up to $1m until the cap is reviewed in October 2011.

Swan said that the guarantee is no longer needed and that "no Australian institution will need the guarantee to fund themselves". He added that the withdrawal of the guarantee should not provide any justification for banks to raise rates above RBA movements.

Other nations have already withdrawn their guarantees.