Select banks take a pass on guarantee

A handful of niche banks, including some prominent foreign banks, is electing to pass up on the option of offering liabilities covered by the Australian government's guarantee.

Deposit-taking entities not yet listed by the Australian Treasury as covered by the guarantee include NSW Teachers Credit Union, The Rock Building Society, Bank of China (Australia) and Australian Settlements (the latter a specialist banking entity that primarily services the clearing requirements of building societies).

Steve James, chief executive of NSW Teachers, said there was no evidence of any demand from members for the guarantee on deposits of more than $1 million. (There is no fee payable on deposits of less than $1 million and the guarantee applies across all deposit-taking institutions.)

James said liquidity levels increased over the last six months and were now around 22 per cent. NSW Teachers has about $2.8 billion in assets and 160,000 members.

The Rock Building Society advertises at its web site that deposits of more than $1 million will attract the government fee (of 1.5 percentage points). However, according to Treasury, The Rock is not yet covered by the scheme.

Bank of China may also plan to finalise the required application to Treasury but is yet to do so.

Another 40 credit unions, or about a quarter of the credit union sector by number (though only a small percentage by assets) are also yet to finalise the paperwork to register with Treasury under the scheme.

Only six foreign bank branches are so far listed by Treasury as covered by the wholesale funding guarantee.

Some foreign banks lobbied noisily during the debate in October over the scope of the guarantee, arguing their sector should be covered. Branches of foreign banks must pay the guarantee fee from the first dollar of covered liabilities.

The six foreign bank branches listed with Treasury are HBOS, Citigroup, HSBC, JP Morgan, Sumitomo Mitsui and Royal Bank of Scotland.

This covers most of the largest branches of foreign banks by liabilities. Exceptions, based on liabilities reported by APRA, include Société Générale, Deutsche Bank and UBS.