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Government guarantee: should it go?

It’s the beginning of the end for the wholesale funding guarantee: are you happy, angry or indifferent?

The government says it will remove the scheme – which was introduced last October to help banks prise open credit markets – when market conditions stabilise.

Is this the correct approach? Is the government jumping the gun by announcing that it plans to ditch the guarantee? And who is best placed to judge when markets are “stable” enough?

But before we say goodbye to the guarantee, the government is considering tampering with its cost structure. Lower-rated lenders, such as Bendigo and Adelaide Bank, and Bank of Queensland, have criticised the current arrangement as discriminatory and anti-competitive.

These two BBB-rated banks pay a fee of 150 basis points, while the Big Four firms pay only 70. The potential changes could flatten these fees, although possibly at a higher rate to discourage reliance on the guarantee.

Is this a sensible interim measure, or should we keep on penalising smaller bankers for their poorer credit ratings?

Give us your thoughts on the future of the government guarantee.

Comments (3)

  1. The current fee structure only serves to underpin the dominance of the Big Four. Bendigo’s Rob Hunt is right when he warns that higher fees could create “a two-tier economy, where lower-rated regional lenders were denied access to funds at a competitive price.”

  2. it is WAY to early even to be talking up about the end of the funding g.
    bad debts are rising, not falling, at the banks

  3. The government is correct to start planning now for the eventual demise of the guarantee, rather than rushing its removal…when markets are back to something-like-normal, it will have prepared in advance – things won’t be rushed

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