The discussion on unintended consequences of the deposit guarantee and possible refinements to the guarantee has been building.
On Tuesday’s 7.30 Report Treasurer Wayne Swan responded as follows:
"WAYNE SWAN: Well Kerry there have been concerns expressed by industry
and they have been discussed extensively with the Reserve Bank and
they’ve also been discussed extensively with the Treasury, as they have
been raised with the Government, and that is why I indicated that we
were looking at all of these issues, and that as we went through all of
the details of the deposit guarantee and the term funding guarantee, we
would be making a subsequent announcement on all of that detail. And
that was said-
KERRY O’BRIEN: When do you-
WAYNE SWAN: -in the House last Wednesday.
KERRY O’BRIEN: When do you expect to make that announcement?
WAYNE
SWAN: In the not too distant future, but Kerry it’s very important to
get this 100 per cent right. It is a difficult area. We acknowledge
that.
When you make a comprehensive move such as the
Government made, it will also have, it will always have some
implications and knock on effects, and you do have to deal with those
as they come along.
That’s what the Government is doing, and that’s what we said we would do-….
KERRY O’BRIEN: Is it true the Reserve Bank has expressed a view that there should be a cap on that guarantee?
WAYNE SWAN: No, the Reserve Bank is not arguing for a cap, that’s Malcolm Turnbull’s policy.
He’s
arguing for a cap of $100,000, and his cap would leave 40 per cent of
all deposits in banks uncovered by any guarantee. What the Treasury and
the Reserve Bank have been talking about is a threshold above which an
insurance premium is charged for the guarantee.
That’s what they’ve been discussing, a threshold somewhere north of $1 million.
KERRY
O’BRIEN: And that threshold would be designed to, in some way, stop the
flow of funds away from investment banks and other lending institutions
that have no protection at all from a Government guarantee?
WAYNE
SWAN: Well certainly it would be designed to ensure that there wasn’t a
distortion when it comes to funds above that level in the market.
And that’s what we are looking, and as soon as we possibly can we will make that announcement."
For other comment see John Quiggin who suggests that "First, the government has to define the boundaries of its guarantee,
making it clear that any investment outside the guarantee will not be
bailed out under any circumstances. Second, it has to make it clear
that there is a significant price to be paid for the guarantee. The
price will include both an insurance premium and restrictions on
risk-taking."
Joshua Gans argues that a premium scheme paid by investors will be hard to administer.
