The guarantee on bank deposits introduced six years ago needs to be watered down, in the view of the academic who helped devise the scheme.Professor Kevin Davis, from the Australian Centre for Financial Studies along with colleague Martin Jenkinson, argue in a report commissioned by wealth management firm Challenger that the scheme is giving banks an unfair advantage and distorting competition among financial services companies. Davis will also serve on panel for the Financial System Inquiry.The Financial Review and The Australian reported today on Davis' conclusions.Davis argued the guarantee was too generous and affecting the business of life insurance companies, finance companies and other non-bank financial institutions.He said the guarantees contributed to falling sales of life insurance products, finance company debentures, cash management products and property trusts, while the amount of retail savings held in government guaranteed bank deposits had soared.Bank deposits of up to A$250,000 are covered by the guarantee, on which banks will soon have to pay a levy of five basis points.Treasury in August estimated the level of deposits eligible for coverage under the Financial Claims Scheme at $688 billion, which was actually a decline on the most recent estimate of $697 billion.The original guarantee in 2008 at the height of the financial crisis helped stabilise the banking system, with at least one regional bank on the verge of a run.