This deposit guarantee applies to deposits over $1 million for each customer in any one ADI, and for which a fee to secure the guarantee is charged. Participation in the scheme is voluntary. For deposits of $1 million or less, there was a separate guarantee under the Financial Claims Scheme; this guarantee is free.

The wholesale funding guarantee is designed to ensure Australian entities seeking to access international capital markets are not at a disadvantage to other internationally-operating competitors. In effect the guarantee offered by the Australian Government amounts to accepting the counterparty risk to which the foreign lender would otherwise be exposed when contributing to any bond or commercial paper issues by an Australian ADI. The effect is the same for lenders to these entities in the domestic capital market.

The wholesale funding provisions distinguish between short-term and longer-term liabilities. The former are defined as bank bills, certificates of deposit, transferable deposits, debentures as defined for tax purposes, and commercial paper with maturities up to 15 months. The longer-term wholesale liabilities are for maturities between 15n months and 60 months. They comprise bonds, notes and debentures, again as defined for tax purposes. There is a strict provision which eliminates what are referred to as ‘complex instruments’, which one might interpret reasonably as any item exhibiting derivative or similar characteristics. In effect, the guarantees are directed to supporting plain-vanilla instruments, a not-unreasonable condition in the current murky world.

The fee structures for the guarantees were based upon the assessments of the quality of the entities as determined by ratings agencies. Where there were discrepancies between ratings agencies, with no predominant classification, then the lowest rating would apply.^[3] The fee payable is set as basis points per annum, so that for entities rated between AAA and AA– the fee is 70; for entities between A+ and A– it is 100; and for BBB+ and below, including unrated entities, the fee is 150.^[4] The four major Australian banks are rated AA. However, the administrator of the guarantee scheme reserves the possibility of charging fees different from these three listed items. The rating applicable on the day of issuance of the securities is the basis for determining the fees.

There is an exception to the general rule about fees to be charged on deposit liabilities of Australian residents with Australian branches of foreign banks. Those banks, not being incorporated in Australia, do not qualify for the general deposit guarantee without fee for deposits up to and including $1 million. Moreover, the wholesale funding guarantee applies only to short-term maturities up to 15 months and there is no provision for guarantees on longer-term issuance. Additional strict conditions apply which contain the extent of the guarantee of residents’ deposits with these branches. Guaranteed liabilities cannot exceed 110 per cent of the average daily value of deposits and short-term wholesale liabilities held by Australian residents in the 30 days up to 24 October. In effect, these branches cannot use the guarantee scheme to boost funding from Australian sources.

The measures apply for three years, though the maturity of guaranteed issues may be up to five years; namely, 2014.