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Govt under pressure to clarify deposit guaran -

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ELEANOR HALL: Well despite the Treasury Secretary's comments this morning the Rudd Government
remains under pressure to clarify its policy on the deposit guarantee and to stabilise cash trusts
and funds which have been excluded.

Many of these funds say that the Government's initiative is putting them under pressure because
investors are withdrawing their money to seek the haven of the bank guarantee, as Stephen just said
that might not necessarily be a bad thing, but let's hear from our business editor Peter Ryan.

PETER RYAN: In the ten days since the Government's deposit guarantee was rushed through Parliament,
banks, non-bank lenders, credit unions and building societies have been non-stop in their praise.

But those on the perimeter of the unprecedented measures, such as mortgage funds and cash
management trusts, have been warning of unintended consequences, as investors think about moving
their cash to the newly-created haven.

Since then, the Treasurer Wayne Swan has been hosing down the fears.

WAYNE SWAN: What I say to them is that their investments are safe, but our decision to provide the
guarantee will put further liquidity in the system and make sure that the very central part of our
financial system is stable.

PETER RYAN: Wayne Swan told Radio National's Breakfast programme that even though the funds in
questions are more akin to investments, their safety shouldn't be a concern.

WAYNE SWAN: We always recognised that there would be consequences of that decision; a comprehensive
guarantee was important, but just because there are some particular investments that aren't bank
deposits, that are not covered, doesn't mean to say you don't need a comprehensive guarantee for
your banking system.

PETER RYAN: But amid some ferocious lobbying from the industry, the Government is now considering a
million dollar threshold on the deposit guarantee, to encourage investors to leave their money
where it is.

The Treasury Secretary Ken Henry told today's Senate hearing he was listening to the industry

KEN HENRY: We are consulting with financial market participants about the impact of both the
Government's announcement and of setting any threshold on deposits above which a premium will be
charged for access to the guarantees.

So we're in active participation with market participants about that, and I wouldn't want to, I
don't think it would be helpful and I don't think it would be fair to those consultations for me to
indicate at this point, what our view on these issues might be.

PETER RYAN: Industry watchers like finance Professor Fariborz Moshirian of the University of New
South Wales says the funds could have a point, but the price could be tougher regulation if they
insist on being treated like banks.

FARIBORZ MOSHIRIAN: The reality is that mortgage funds and cash management funds are not supervised
by APRA (Australian Prudential Regulation Authority) and therefore they are not part of the
depository institutions where the Government came in and guaranteed their operations and
particularly their deposits.

I bet if they want to be part of the depository institutions, naturally they have to follow
regulations imposed on our banks. That means they have to be willing to pay extra cost for that
supervision and the guarantee provided by the Government.

PETER RYAN: But ultimately, Professor Moshirian says the currently excluded funds will have to be
part of the guarantee.

He argues that even the big funds, like Challenger Financial, would barely make a dent compared to
the weight of a major bank.

FARIBORZ MOSHIRIAN: Their asset is $2.9-billion, it's less than the annual profit of one of our
major banks, and so I don't see, I think that is a major issue for Government to step in and
reassure investors in this sector.

PETER RYAN: So you think that ultimately the Government will step in and make sure that any
instability is taken away?

FARIBORZ MOSHIRIAN: Absolutely, at this stage that is the only way to go. Otherwise we are going to
see more questions about the aggregated financial services industry that we have and also the issue
of competition and concentration of funds.

ELEANOR HALL: That's Professor Fariborz Moshirian from the University of New South Wales ending
that report by business editor Peter Ryan.