Further work on issues related to guarantees to depositors and policyholders has continued under the aegis of the Council of Financial Regulators, a non-statutory body comprising the heads of the RBA, The Treasury, APRA and the Australian Securities and Investments Commission (ASIC).^[6] The context in which the Council has advanced its understanding of the issues explored initially in the Study of Official Guarantee Schemes appears to be related to crisis-management arrangements.

There was recognition by the Council of the public perception of a government guarantee for the repayment of deposits, in full or in part, from a failed financial institution. In public surveys undertaken on behalf of the Council this perception was found to be most salient for banks but existed also to a substantial extent for other entities such as general insurers. The initial advice given to the Treasurer by the Council was for the establishment of a Financial Claims Compensation Scheme which would give depositors and policyholders timely access to funds in the event of closure of an authorised deposit-taking institution or general insurer (RBA 2006a). The maximum payment would be capped at $50,000. The response was to have the Council consult on the proposal with the finance sector.

The consultations were extensive, involving the various associations linked to deposit-taking institutions and insurance activities. There was opposition to the original proposal, reflecting a variety of arguments invoking moral hazard arising from the diminution of market discipline. The insurance representatives had other concerns involving broader issues of a regulatory nature outside the reach of the Council (RBA 2006b). Following these discussions, the Council reported to the Treasurer with revisions to the original scheme, including reducing the cap to $20,000.

In June 2008, the then Commonwealth Government announced a decision to implement a financial-claims scheme along the lines of the proposals from the Council. The upper limit would be $20,000. APRA would administer the scheme and have first claim over the assets of the failed institution to meet the cost of the claims funded. Only if APRA could not recover the total costs associated with the funding of the claims under the scheme would there be a levy on the surviving entities in the activity associated with the failed institution (RBA 2008).