The Senate Economics References Committee has published its Report on The Financial Claims Scheme and the Guarantee Scheme for Large Deposits and Wholesale Funding.
The majority has recommended that:
1…. in view of the experience of markets not pricing all guaranteed debt identically, the Government review the need to apply differential premia for ADIs with different ratings for the wholesale funding guarantee (and hence also that applying to deposits over $1 million).
2. the Government introduce an appropriately designed guarantee scheme for residential mortgage-backed securities.
The Labor senators have published a dissenting report and Senator Xenophon has published a minority report.
The Labor Senators observed:
ADI’s such as regional banks, member owned or mutual financial institutions are subject to higher costs of raising funds. These institutions make the salient point that they are subject to the same level of government prudential management as the larger banks and therefore might be regarded at the same risk level. Labor members support a review of the fees charged for the wholesale funding guarantee, with a particular focus on narrowing the range to a more internationally consistent level.
Labor Senators do note that there is a need to plan for a cessation of the government guarantee and that the fees charged do play a role in the orderly withdrawal of this guarantee. This, of course, applies equally to differently rated banks.
Labor Senators recommend the Government review the application and range of existing wholesale funding guarantee fee schedule for ADI’s to ensure that the fee levels charged are fair and consistent given contemporary market and economic conditions.