Operations of Australia's bank guarantee scheme

I had been wondering how the various elements of the Australian Government's bank guarantee scheme were working in practice after the initial negative fall out in the mortgage funds market. A story by Mathew Drummond in today's Australian Financial Review provides some hints. I cannot give you the full link - the story is behind the FR's pay wall.

As an aside, I have been meaning to do an update on the media and the internet. Just a reminder to myself to do so.

From today, Australian banks will be able to use the Government's guarantee to raise funds off-shore, creating triple A borrowings. In Parliament, Australian Corporate Law Minister Nick Sherry said that sixteen institutions had already advised that they would make use of the new facility. However, Mr Sherry did not know at this point just what sums might be involved.

Mathew Drummond notes that the similar British scheme that has now been in operation for a month has lowered funding costs with quite fine margins because of investor demand.

Also from today, domestic depositors with deposits of more than one million dollars will have to decide whether or not they are prepared to pay the insurance premium required to gain the Government guarantee on their deposits. Apparently only Macquarie Bank is planning to absorb this.

My feeling is that a good number won't bother. It all comes back to a risk assessment.

More broadly, I find it interesting that the heat and worry generated by the global financial crisis itself has, at least so far as Australia is concerned, largely vanished.

The topic is no longer a BBQ stopper, although withdrawals from many mortgage funds remain frozen. People are far more worried about changes to the real economy.

In an earlier post, What is the difference between recession and depression? Saul Eslake's View, I referred to Saul Eslake's discussion on the differences between recession and depression. Australia may avoid technical recession, but to most Australians it certainly feels as though the country is in recession.