Indemnity scheme canvassed for Australian banks

Some form of Australian government indemnity on select corporate lending is one option under discussion between banks and Treasury amid debate over whether to offer further assistance to the sector in the face of the presumed reluctance of a number of foreign banks to maintain lending to Australian companies.

The Financial Review on Saturday reported that the government was investigating the idea of providing an indemnity for local banks so they can refinance loans partly funded by foreign banks without breaching the prudential requirements of the banking regulator.

In today's edition the newspaper follows up on its own report from last Monday that suggests some form of federal government financial aid could be extended to the commercial real estate sector.

Foreign banks and, increasingly, major banks have talked through versions of this idea since late November.

Treasury is already supporting up to $2 billion in lending in the home loan sector (and may lend up to a further $6 billion) and will provide guarantees on what look like being no more than $250 million of subordinated lending on vehicle loans (with the banks actually funding these loans).