Non-banks squeezed as Govt reshapes guarantee

The government yesterday introduced a swag of changes to its bank guarantee scheme including capping deposits it would insure at $1 million and exerting further controls over non-bank providers who sign on.

Wednesday, October 22nd 2008, 8:43PM

by David Chaplin

John Whitehead, Treasury secretary, said in a statement issued in conjunction with the Reserve Bank last night that “a number of issues have arisen around pricing of the scheme and its coverage” since the guarantee program was first announced on October 12.

He said the amendments should delineate more clearly the boundary between wholesale and retail deposits and instigate a fairer but still affordable pricing regime.

The updated fee schedule for the new business component of those institutions with deposits under $5 billion now ranges from 10 basis points to 1% depending on their rating status.

Non-bank deposit-takers with a rating below BB or unrated would remain subject to a 3% fee, the Treasury statement said. However, under the new rules such firms would receive a back-dated fee rebate if they achieve a BB-rating or above during the two-year term of the guarantee.

The government also indicated it would fast-track new Reserve Bank oversight powers for the non-bank sector.

“The Reserve Bank is investigating options that will, if feasible, bring forward prudential requirements that would impose a greater measure of prudential discipline on non-bank deposit takers,” Treasury/Reserve Bank statement said.

Collective investment schemes that invest into authorised deposits would also be fee-exempt in order to avoid double-dipping by the government, the statement said, while bare trusts were granted some reprieve.

Treasury also scrapped the unlimited guarantee for deposits imposing a $1 million cap per investor per institution. Australia instigated a similar $1 million limit for its deposit guarantee scheme earlier in the week.

The first institutions to be formally included in the guarantee scheme should be named next Tuesday.

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