Government guarantee fund climbs again

The amount of money put aside by the Government to cover potential finance company failures has climbed again after falling for the past couple of months.

Government accounts for the nine months to February 28 show the provision for the Retail Deposit Guarantee Scheme has increased by $78 million to $849 million.

The provision is for losses considered "more likely than not to occur".

The provision hit a high of $863 million in September last year but fell to $771 million at the end of January.

So far just three of the 73 financial institutions registered with the scheme have failed.

Mascot Finance was the first to go in March last year and investors have been paid back about $60 million so far.

Strata Finance collapsed in April last year owing $449,000 and last week Vision Securities went under owing $30 million.

In the notes to the financial statements the Treasury states that while the provision represents its best estimate of likely loss, "a significant range of outcomes are possible under the scheme in terms of which entities may default and the eventual loss to the Crown following an event of default".

The Government says this reflects the significant uncertainty over what can be realised from an entity's assets in the event of a default.

A total of $133 billion is covered by the current scheme, which finishes on October 12. Deposit takers can apply to be part of the extended scheme, which has much tougher conditions including having a minimum BB credit rating.