Ustralian and New Zealand Schemes During Global Financial Crisis

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Submitted By ANGELNADZ
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1.0 Introduction

The global financial crisis of 2007 transmitted shock waves worldwide urging international governments to prepare defensive measures to combat this economic turmoil. Hence, on 12th October 2008, the Australian and New Zealand governments introduced analogous schemes to guarantee liabilities issued by a wide range of financial institutions whereby prior to this phenomenon, neither nation had deposit insurance arrangements in place, a distinctive characteristic common in other developed nations.

The Australian Government introduced a blanket guarantee on deposits namely the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding until October 2011. Consequently, it was cultured to a scheme in which the first AUD$ 1 million was to be guaranteed free of charge, with larger and foreign branch deposits able to be insured for a fee (Committee, 2009).

The Crown Retail Deposit Guarantee Scheme and Wholesale Funding Guarantee Facility were implemented at the same time in New Zealand. The initial coverage was NZ$1 million per deposit-holder per institution, but this was reduced to NZ$500,000 for bank deposits and NZ$250,000 for non-bank deposits in September 2009 when the scheme was extended to the end of 2011 (Committee, 2009).

Both governments also introduced unlimited wholesale bank debt funding guarantee schemes available for new borrowings; Whole Funding Scheme and Crown Wholesale Guarantee Scheme respectively in Australia and New Zealand. These schemes were intended to last until conditions normalized and to cover senior unsecured debt instruments with maturities up to 60 months (Schwartz, 2010).

In this report, we will discuss the reasons both these countries introduced these schemes during a global financial crisis. This will be followed by the analysis of the features of the above schemes and how likely it has…...

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