Wholesale Funding Guarantee

The government has announced the phasing out of the guarantee for large deposits from March. This effects the large overseas bond issues that the banks have been electing the have the government guarantee for a fee. The ability to pay for a guarantee for deposits over $1 million will also be phased out.

$1 Million Deposit Guarantee
The automatic guarantee for funds on deposit of up to $1 million is unaffected by the announcement. This remains in place until November 2011

Implications
The banks are able to raise funds overseas without the guarantee now. If this becomes difficult or expensive however they may seek to raise domestic deposits by offering very attractive rates. This may impact on margins for smaller organisations. In the end it's likely to be mortgage holders who will pay for the attractive rates.

Some investors, who have elected to pay the fee to guarantee their deposits over $1 million may now elect to spread their deposits.