KEY POINTS:
The Government will today announce a wholesale funding guarantee scheme for banks.
While it will dovetail with Australia's approach, the wildcard may be measures to help borrowers in return for taxpayers underwriting the big banks' $300 billion funding risk.
Since announcing the retail deposit guarantee four weeks ago, Treasury and Reserve Bank officials have been working on a wholesale scheme seen by many as necessary to ensure our big local banks are not disadvantaged when competing for funds on wholesale markets.
Most other developed countries now have such schemes, and in these uncertain times investors may well prove shy of investing in institutions without Government backing.
New Zealand, however, has been waiting for details of Australia's wholesale scheme so that ours, when it is unveiled, will be compatible.
Any serious discrepancies between Australia's scheme and our own are likely to result in even more messy unintended consequences, just as the hasty introduction of retail schemes in both countries has.
Australia's Treasury released further details of its scheme early this week, which was probably the catalyst for Finance Minister Michael Cullen to say a final decision on the local scheme was close. Yesterday he confirmed he would make an announcement today.
"[We're] probably best to do it some time over the weekend while the markets are closed and to give some time for people to think through the consequences of any such scheme," he said earlier in the week.
The Australian scheme will see banks and financial institutions pay for their coverage on the basis of their credit rating.
AA rated institutions, which include the big four Australian banks, will pay 0.7 per cent of the sum raised for the cover. A rated outfits will pay 1 per cent, and BBB and less or unrated institutions will pay 1.5 per cent.
The scheme will run for five years. "It's sort of a risk adjusted scheme which makes sense," said PricewaterhouseCoopers partner Paul Skillender. "I would expect that you would get something similar in New Zealand, although I'm not 100 per cent sure they'll close all the gaps, compared to the Australian scheme."
Skillender said the cost and term of the New Zealand version were two of the three key points he would be looking for.
Pricing is perhaps the most important factor. Cullen has clearly said he regards both the retail and wholesale schemes as necessary evils. By setting the price relatively high, the banks will be discouraged from using the facility unless they really have to.
ANZ National Bank chief executive Graham Hodges last week told the Herald that it was entirely possible the additional risk premium paid by banks that were highly rated but were not covered by such a guarantee would be similar to the cost of the guarantee.
Skillender said the third point he would be looking for in any announcement this weekend was the inclusion of measures to achieve some kind of policy objectives.
Although Cullen did not rule it out last week, it seems unlikely the Government will require the banks to float shares on the local market as part of the deal.
"Even if they didn't go that far, there is potential that they might incorporate other social objectives around managing hardship for borrowers," said Skillender.
That is the type of concession from the banks that bank workers' union Finsec called for yesterday.
Its campaigns director, Andrew Campbell, said: "The quid pro quo needed for the wholesale deposit scheme is strong lending regulation attached to it."
