Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

2008

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

guarantee scheme for large deposits and wholesale funding appropriation bill 2008

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP)



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1            Guarantee Scheme for Large Deposits and Wholesale Funding 5

 

Do not remove section break.



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ADI

An authorised deposit-taking institution under the Banking Act, including an Australian-owned bank, a subsidiary or a branch of a foreign bank, a building society or a credit union.

APRA

Australian Prudential Regulation Authority

Banking Act

Banking Act 1959

Deed of Guarantee

The Deed of Guarantee in respect of the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding, executed on behalf of the Commonwealth on 20 November 2008, which is published on www.guaranteescheme.gov.au.

Financial Claims Scheme

The financial claims scheme for account holders established under Division 2AA of the Banking Act.

Large deposit

Deposits in excess of $1 million deposited with an Australian-incorporated ADI or any deposits with an Australian branch of a foreign bank, which may be covered by the Deed of Guarantee in accordance with Scheme Rules.

RBA

Reserve Bank of Australia

Scheme Rules

The Scheme Rules identified in the Deed of Guarantee, which are published on www.guaranteescheme.gov.au.

Small deposit

The first $1 million deposited with an Australian-incorporated ADI, which are covered by the Financial Claims Scheme.

Wholesale funding

Includes short-term funding and term funding for up to 60 months provided to financial institutions, such as ADIs, both within Australia and in overseas markets, enabling those institutions to provide credit to businesses and households.



Guarantee Scheme for Large Deposits and Wholesale Funding

The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding is established in the Deed of Guarantee and the Scheme Rules.

This Bill appropriates funds to enable claims to be paid under the Deed of Guarantee in accordance with the Scheme Rules.  The Bill also provides a borrowing power, should there be insufficient funds in the Consolidated Revenue Fund at the time claims are to be paid.

Date of effect : 28 November 2008.

Proposal announced : 12 October 2008.

Financial impact : The expected financial impact of the Guarantee Scheme for Large Deposits and Wholesale Funding is remote and unquantifiable.

ADIs are subject to prudential regulation by APRA in accordance with international standards, which are designed to ensure that financial institutions have the capacity to meet their financial promises.  This framework requires institutions to be adequately capitalised and have appropriate risk management systems in place.

Expenditure would arise under the Deed of Guarantee only in the unlikely event that an institution fails to meet its obligations with respect to a commitment that is subject to the Deed of Guarantee and the Deed of Guarantee is called upon.  In this case, the Government is likely to be able to recover any such expenditure through a claim on the relevant institution.  The impact on the Government’s budget would depend on the extent of the institution’s default and its ability to meet the Government’s claim.

Do not remove section break.



C hapter 1     

Guarantee Scheme for Large Deposits and Wholesale Funding

Outline of chapter

1.1                   The Bill provides an appropriation to enable claims to be paid under the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding.  The Bill also provides a borrowing power, enabling money to be borrowed to pay those claims, should there be insufficient funds in the Consolidated Revenue Fund at the time claims are to be paid .

Context of amendments

1.2                   On 12 October 2008, the Australian Government announced a guarantee for deposits with all Australian-incorporated ADIs, that is, all Australian-owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies, for a period of three years.  The Government also announced a guarantee on wholesale funding for all Australian-incorporated ADIs, on application, for a fee.  The purpose of these measures is to promote financial system stability and to promote confidence and certainty in Australian financial institutions.

1.3                   On 24 October 2008, the Government announced the details of the deposit and wholesale funding guarantees, including that, from 28 November 2008:

•        deposits over a $1 million threshold will benefit from the deposit guarantee upon the payment of a fee;

•        wholesale funding of up to 60 months will benefit from the wholesale funding guarantee upon the payment of a fee; and

•        foreign bank branches will benefit from the deposit and wholesale funding guarantees in limited circumstances.

1.4                   From 28 November 2008 the Government will implement the deposit and wholesale funding guarantees through two mechanisms:

•        small deposits (that is, the first $1 million deposited with an Australian-incorporated ADI) will be covered by the Financial Claims Scheme established in the Banking Act; and

•        large deposits (that is, deposits in excess of $1 million deposited with an Australian-incorporated ADI or any deposits with an Australian branch of a foreign bank) and wholesale funding may be covered under the Guarantee Scheme for Large Deposits and Wholesale Funding.

1.5                   The Guarantee Scheme for Large Deposits and Wholesale Funding is established in the Deed of Guarantee and the Scheme Rules and will be administered by the RBA.

1.6                   Any claims by beneficiaries under the Deed of Guarantee must be made to the RBA in accordance with the Scheme Rules.  Claims will then be paid out of funds appropriated from the Consolidated Revenue Fund by this Bill.

Summary of new law

1.7                   The Bill provides for an appropriation, enabling claims to be paid under the Deed of Guarantee in accordance with the Scheme Rules, and a borrowing power, enabling money to be borrowed to pay those claims should there be insufficient funds in the Consolidated Revenue Fund at the time claims are to be paid.

Detailed explanation of new law

Appropriation

1.8                   The Consolidated Revenue Fund is appropriated for two purposes.  First, to pay claims under the Deed of Guarantee in accordance with the Scheme Rules.  Second, to repay a borrowing, and to pay interest on a borrowing, made on behalf of the Commonwealth for the purpose of paying claims under the Deed of Guarantee in accordance with the Scheme Rules.  [Clauses 3 and 5]

Borrowing

1.9                   The Minister may, on behalf of the Commonwealth, borrow money for the purpose of paying claims under the Deed of Guarantee in accordance with the Scheme Rules [Subclause 6(1)] .  This power is provided because money may need to be borrowed if there are insufficient funds in the Consolidated Revenue Fund to pay claims at the time those claims are to be paid.  Borrowed money is paid into the Consolidated Revenue Fund.

1.10               The borrowing must not be for a period exceeding 24 months.  Borrowing includes raising money or obtaining credit, whether by dealing in securities or otherwise.  [Subclauses 6(2) and (3)]

Other provisions

1.11               The Act may be cited as the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Act 2008 [Clause 1]

1.12               The Act will commence on the day on which it receives the Royal Assent.  [Clause 2]

1.13               Payments may be made under the Deed of Guarantee in accordance with the Scheme Rules either inside or outside Australia.  [Clauses 4 and 5] Money may be borrowed, for the purpose of paying claims under the Deed of Guarantee in accordance with the Scheme Rules, and those borrowings repaid, either inside or outside Australia.  [Clauses 4 to 6]

 

Do not remove section break.