Less demand for deposit guarantee

Demand for use of the government guarantee on deposits of more than $1 million and on short-term bank debt is falling, the latest Financial Stability Review published by the Reserve Bank of Australia shows.

The RBA said in August 2009, the average value of short-term guaranteed debt was $17.2 billion, which was equivalent to roughly five per cent of total short-term debt outstanding of banks.

Foreign banks were the major users of the guarantee on short-term debt.

Guaranteed large deposits stood at a little less than $17 billion, or around 1.5 per cent of all bank deposits.

The RBA said demand declined over the last six months for both guaranteed short-term debt and large deposits.

Demand is also waning from banks for the guarantee on wholesale debt, though this guarantee has been much more central to the stabilisation of funding for banks than the short-term guarantee.

The RBA said since the introduction of the wholesale guarantee in November 2008, Australian banks issued $185 billion of long-term debt, with banks making use of the guarantee over $142 billion of this debt.

On RBA data banks placed around 60 per cent of these term bonds offshore, mainly in the US market.

In the domestic market unguaranteed paper accounted for about half of term debt issuance by banks.

The guarantee, and revised bank funding strategies, has served to extend the term profile of banks' liabilities.

The RBA said the percentage of liabilities maturing in more than one year stood at 78 per cent at June 2009, up from 63 per cent a year earlier.