The guarantees have been used comprehensively, according to the most recent information as shown in Table 2. The schemes became effective on 28 November 2008 so, at the time of writing, there has been just four months’ experience. There has been a rapid adaptation of funding arrangements, with a shift from short-term wholesale funding to longer-term wholesale funding within in this brief period. The December series includes the last three days of November at the start of the scheme. The March data applies up to 24 March 2009.
Table 1.2. Table 2: Guaranteed Sums ($bn) (daily average value)
|
Dec08 |
Jan09 |
Feb09 |
Mar09* |
|
|---|---|---|---|---|
|
Deposits** |
18.9 |
19.0 |
19.3 |
— |
|
Short-term WF** |
15.4 |
19.4 |
22.4 |
18.9 |
|
Long-term WF** |
8.6 |
35.9 |
60.4 |
81.2 |
|
Total |
42.1 |
74.5 |
102.2 |
— |
|
Memorandum item Fees ($m) |
32.7 |
51.3 |
63.2 |
— |
*data up to 24 March 2009
**daily average values
Source: RBA 2009: 28
The final row records the fees paid during the first three months.
This dominance of the longer maturities — three to five years — reflects the advantages conferred by the guarantee, allowing stability in funding asset portfolios and curtailing exposure to short-term variability in market conditions. There is no doubt about this positive impact for bank portfolio management because the banks issued a mere $3.5 billion in term debt in the three months September to November 2008.[7] This shift has compensated also for the very sharp falls in issues of asset-backed securities and residential mortgage-backed securities between 2005–07 and now.
The effects of the guarantees have been pervasive, being felt in the deposit market as well as the wholesale funding aspects mentioned above. Major banks gained share during the economic and financial turbulence prior to the announcement of the guarantees. Smaller institutions regained some of their lost share after the announcement of the deposit guarantee.[8]
The fees paid, as depicted in the memorandum item in Table 1, reflect the very stable values for insured deposits over $1 million in value; the deposit holders opt in for the guarantee rather than banks having blanket coverage for all these large deposits. The very rapid growth in the values of fees paid reflects the increases in the values of the wholesale funding issuances guaranteed by the Australian Government.
There has been a proliferation of various funding-support devices subsequent to the announcement of the guarantees. A specialised support vehicle was devised to provide funds for financing purchases of motor vehicles with the exit of GE Finance from such lending in Australia as well as the diminution of activities in the same sphere from General Motors Acceptance Corporation. This combination of government and bank funding is likely to be repeated in other specialised excursions into sectoral funding.
More revealing is the role of the Australian Office of Financial Management (AOFM). This government funding office has been committed to support the property market through the funding of residential-mortgage-backed securities, as indicated by the Australian Treasurer (Swan 2008). The AOFM acts as the ‘cornerstone investor’ in issues of residential-mortgage-backed securities, most of which are on behalf of property trusts and the like, though the Bank of Queensland is the issuer of a proposal in the second round of offerings.[9]
[7] This was the period of greatest market turmoil associated with the failure of Lehman Brothers and distress amongst any number of banks in the United States and Europe, especially the United Kingdom.
[8] Substantial commentaries on market conditions and influences are offered in the moist recent Financial Stability review (RBA 2009: 26–32).
[9] This funding may be seen as a measure of liquidity support for a BBB+ rated bank not willing to explore a market placement of its paper even with the guarantee from the Australian Government.