The Australian and New Zealand governments announced measures to lessen the impact of the global financial market rout on their banking systems, over the weekend. The move came in response to similar efforts agreed by G-7 nations to stabilize financial markets and restore the flow of credit, to support global economic growth.
In Monday's session, the Australian dollar and its New Zealand counterpart staged a modest recovery against the US dollar as traders took in the government measures announced over the weekend. During early European deals, the Australian and New Zealand dollars recovered their losses it incurred in Asian trading against the US currency. Currently, against the greenback, the Aussie is worth 0.6800 and the kiwi is trading at 0.6080, up from their Asian session lows of 0.6549 and 0.5924, respectively.
Australia
The Australian Prime Minister Kevin Rudd said Australian banks despite the fact that their balance sheets are in excellent shape, now have to compete with these foreign banks for funding in global financial markets. According to him, foreign banks, which despite their weaker balance sheets, now have the advantage of government guarantee that pose a challenge to Australian banks.
"As Prime Minister of Australia, I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments in support of them".
On October 12, Rudd announced three measures that include guaranteeing bank deposits as well as wholesale term funding and doubling the fund provision for purchasing Residential Mortgage Backed Securities or RMBS.
First, the government will guarantee all deposits of Australian banks, building societies and credit unions and Australian subsidiaries of foreign-owned banks. According to reports, Australia's entire deposit base would be in the range of A$600 billion to A$700 billion.
The guarantee, which will be effective from the announcement date, will be in place for a period of three years and legislated as part of the Financial Claims Scheme. For the first three years, there will be no cap, after which the government will review the position.
The Rudd government will also legislate new measures to enhance the powers of the Australian Prudential Regulation Authority.
Second, the government announced that it will also guarantee wholesale term funding of Australian incorporated banks and other authorized deposit-taking institutions or ADIs. The guarantee will be offered in return for a fee in respect of eligible non-deposit debt obligations of Australian ADIs and foreign subsidiary banks operating in Australia.
The measure is meant to enable Australian institutions raise funds overseas in the current tight conditions and will restore confidence in credit markets. The facility will be withdrawn once market conditions return to normalcy.
Third, the Australian government decided to direct the Australian Office of Financial Management or AOFM to purchase an additional A$4 billion in RMBS. Now, the total funds allotted for purchasing RMBS stands at A$8 billion. The additional funding will be used for purchase of RMBS from non-ADI lenders - lenders who are not banks, building societies or credit unions - by the AOFM. Rudd said this will aid Australia's mortgage market by leveling the playing field for non-ADI institutions and ensuring that this sector of the lending market has access to funding for their operations.
Rudd said the latest measures are part of also international measures designed to help unclog the arteries of the global financial system. "Critical to the international economy, critical for the Australian national economy and critical also for the household economy". "We are in the economic equivalent of a rolling national security crisis and the challenges are great".
New Zealand
In New Zealand, Finance Minister Michael Cullen announced on October 12 that the government is introducing an opt-in retail deposit guarantee scheme.
Cullen said, "The scheme will cover all retail deposits of participating New Zealand-registered banks and retail deposits by locals in non-bank deposit-taking entities. This would include building societies, credit unions and deposit-taking finance companies". The scheme excludes related party liabilities.
The new scheme would be in the form of a bilateral contractual agreement between the Crown and the individual institutions, which take up the guarantee. Reports said the government's liability under the scheme would total NZ$150 billion.
The scheme will be free for institutions with total retail deposits under NZ$5 billion, while a fee of ten basis points per annum will be charged on total deposits above $5 billion.
According to Cullen, the deposit guarantee is meant to address the current situation of international financial market turbulence and it will be for a two-year term in the first instance. This will provide the government the time to see how well international financial markets stabilize in the months ahead.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.