Australian Bankers’ Association comments on
withdrawal of wholesale funding guarantee

Sydney, 8 February, 2010: The Australian Bankers’ Association (ABA) said yesterday’s decision by the Federal Government to withdraw the wholesale funding guarantee was expected, but that there were different views on whether the funding withdrawal date, of 31 March 2010, gave all institutions time to adjust to the new market conditions.

The ABA was commenting on the Federal Treasurer’s decisions to withdraw the wholesale funding guarantee but to leave in place the financial claims scheme (deposit insurance).

David Bell, Chief Executive of the ABA, said: “While I have not surveyed all ABA member banks, the major banks I spoke to say that the decision came as no real surprise, and that they can adjust to the new funding arrangements with no difficulty.”

“However, a regional bank member told me that it would have preferred a longer transition period of three to six months to allow a more orderly adjustment to occur, and would ensure that the market adjusts to the new pricing signals."

Regarding banks’ funding and margins, Mr Bell said while funding pressures had eased, they remained higher than prior to the global financial crisis.

“There is very healthy competition for deposits resulting in high deposit interest rates across the board. While the interest rate margin had recently ticked up, the Reserve Bank had observed in a Bulletin at the end of last year that the major banks had passed on the reductions in official interest rates to home borrowers to a greater extent than the reduction in their funding costs,” he said.

Mr Bell concluded that the ABA had no role in banks’ pricing policies and each bank has its own approach on the pricing of home loans.

The Treasurer’s media release notes that: “Australian banks and other lenders have so far paid around $1.1 billion for the use of the Guarantee and will pay around $5.5 billion over its full life.” ¹

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS

[1] The Hon. Wayne Swan MP, Treasurer, Media release: Government Withdraws Bank Funding Guarantee and State Guarantee, issued on Sunday February 7, 2010