Government defends bank deposit plan

The Federal Government is defending its bank deposit guarantee plan, following claims by Reserve Bank Governor Glenn Stevens that the scheme is prompting investors to pull money out of managed funds and mortgage schemes.

The Federal Government is defending its bank deposit guarantee plan, following claims by Reserve Bank Governor Glenn Stevens that the scheme is prompting investors to pull money out of managed funds and mortgage schemes.

Finance Minister Lindsay Tanner has defended the Government’s plan, arguing it was “the right thing to do,” while telling Sky News a close eye will be kept on the scheme.

“We clearly will continue to monitor the detailed application of the measure and the implications that flow from it.”

The defence comes as a report in The Australian claims the RBA believes the deposit plan will pull investors out of the market, and wants the Government to impose a dollar cap on deposit guarantees.

The Australian claims Stevens told Treasury Secretary Ken Henry an appropriate cap would be set at $5 million, although Stevens is reported to have said that the lower the cap, the better.

The report follows a joint letter sent to the Government by the heads of several investment firms, claiming their exclusion from the deposit guarantee scheme will affect their lending practices.

Tanner claims no such cap is under consideration, while Treasurer Wayne Swan has also hit out at the reports.

“The Government announced the blanket guarantee on deposits on 12 October with the support of the Treasury and our regulators, including the RBA Governor,” Swan says.

“Today’s report is wrong to claim otherwise. We have said all along that we will consider any necessary refinements to the guarantee, following consultation with industry and further discussions with the regulators.”

The argument come as the nation’s largest mortgage fund, the $2.9 billion Challenger Howard Mortgage Fund, announced it will freeze investor redemptions after the Government’s deposit guarantee has promoted many investors to pull their money out and put it into bank deposits.