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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.
[1] The School of Finance and Economics, the University of Technology, Sydney, Warren.Hogan@uts.edu.au. I am grateful to S. M. Auld, W. Evans and W. P. B. Hogan, as well as referees, for comments and suggestions towards the development of this paper.