Government looking at cap on guarantee

The Rudd government may be forced to impose a cap on its blanket guarantee on all bank deposits after major investment banks told the government last Friday that their exclusion from the scheme was damaging their ability to lend to the corporate and mortgage market in Australia. Reserve Bank governor Glenn Stevens is also concerned that the guarantee is having unintended consequences on the lending, deposit and investment markets in Australia. Mr Stevens is believed to have been telling the treasury that a cap needs to be set on the scheme and that the mooted $5 million cap may be too high. Large amounts of short term money is believed to be rushing out of unprotected institutions to banks protected by the government's guarantee. Those institutions included in the scheme are also being favoured by debt markets at the expense of those who are not. The Australian chief executives of JPMorgan, UBS, Deutsche Bank, Societe Generale, BNP Paribas and the Bank of Scotland are believed to have written a very blunt letter to the Prime Minister and Treasurer complaining about their exclusion from the deposit guarantee scheme.

Source: The Australian