Half of all deposits covered by guarantee

Around 50 per cent of all deposits and around 10 per cent of all wholesale bank liabilities are covered by one of the two guarantees announced by the Australian government in October 2008.

A joint submission by the Australian Prudential Regulation Authority and the Reserve Bank of Australia to an inquiry by the Senate's Economics Committee into the future of the guarantee of liabilities provides an overview of their use across the industry.

The two financial regulators estimated that around $650 billion in deposits of up to $1 million were covered under the Financial Claims Scheme, the system of unpaid deposit insurance introduced in a hurry to increase confidence in bank deposits at a time of extraordinary unease in financial systems worldwide generated by the second phase of the credit shock in 2008, and immediately following the collapse of Lehman Brothers one month earlier.

Another $21 billion in deposits of more than $1 million is also covered under the guarantee on wholesale liabilities, with depositors in this instance opting to pay the guarantee fee to their bank, credit union or building society.

In most cases it is investors with very conservative mandates, such as trustees and councils that are requesting, and paying for, the guarantee on deposits of more than $1 million.

Another $106 billion in short-term and long-term wholesale liabilities was covered by the government guarantee as of June 2009, equal to about 10 per cent of wholesale liabilities.

The regulators said this predominantly reflects the placement of long-term wholesale debt by banks with investors, with the average value of guaranteed long-term wholesale debt at June 2009 being around $91 billion.

In a separate piece of data in the submission, the regulators noted that Australian banks were "relatively large issuers of government guaranteed long-term bonds, accounting for over 11 per cent of global issuance", and estimated this at US$93.7 billion.

The Australian government guarantee also covered another $15.4 billion of short-term wholesale liabilities of banks.

APRA and RBA noted that the percentage of short-term wholesale liabilities covered by the guarantee fell over recent months, but did not spell out the percentage.