The bank deposit and wholesale guarantees of 12 October 2008: An appraisal

Abstract

The Australian Government's guarantee of funds lodged with deposit-taking entities in Australia, and of security issues by Australian banks, has fostered support for smaller and less well-placed financial entities compared to the four major Australian banks. In applying in these settings there is a prospect of moral hazard in the benefited entities. With respect to the issue guarantee, there are grounds for expecting the prudential authorities to take steps to ensure that the funding support is not dissipated in fostering more risky asset portfolios.