The latest piece of the Federal Government's response to the
credit crunch has been released: a regulation establishing the $1
million threshold limit on the Government Guarantee, and the
declaration of a list of covered financial products that will
comprise protected accounts for the purposes of the Government
The limit for the Scheme
Last month the Federal Government announced that a $1 million
threshold limit will apply in respect of guaranteed deposits from
28 November 2008. Up until that date, all deposits eligible for the
Guarantee will be guaranteed without charge. After that date,
deposits of over $1 million will only be guaranteed if the relevant
fee is paid.
The Banking Amendment Regulations 2008 (No. 1), which comes into
effect on 28 November 2008, prescribes a $1 million threshold limit
for the purposes of the Government Guarantee.
Covered financial products under the Scheme
mentioned in previous Alerts, the Government Guarantee of
deposits only applies to protected accounts with ADIs. The
Financial System Legislation Amendment (Financial Claims Scheme and
Other Measures) Act 2008 defines a protected account as an account
that is kept by an account-holder with an ADI that is either :
prescribed by regulation; or
an account, or covered financial product, that is kept under an
agreement between the account-holder and the ADI requiring the ADI
to pay the account-holder on demand, or at an agreed time, the net
Under the Declaration, various deposit accounts such as saving,
call, current, debit card, transactions, or mortgage offset
accounts that are separate deposit accounts are declared to be
covered financial products. It is interesting that this declaration
has been made in respect of retail deposit products that would
ordinarily fall within the definition of "protected
account", without the need to be declared a covered financial
product. This is because many of the product types specified in the
Declaration involve an account between an account-holder and an ADI
requiring the ADI to pay the account-holder on demand or at an
agreed time the net credit balance of the deposit account.
What is expected to come
It now appears that the scheme will be legislative for deposits
of under $1 million and contractual for deposits over $1 million
and the guarantee of wholesale funding.
Although these latest developments do clarify some aspects of
the Scheme, there are still a number of pieces missing.
For example, Scheme rules, deeds and procedures for determining
the threshold and to flesh out the Scheme even further would be
welcomed. They might cover such matters as the rules to be applied
by ADIs for the purpose of aggregating accounts in order to
determine whether the $1 million threshold limit has been met and
prescribed disclosures ADIs must make in relation to the operation
of the guarantee scheme in relation to their accounts. We assume
that Treasury is working on drafting these and consulting with
relevant agencies and industry bodies in order to release this
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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