Guarantee On Deposits Made By New Zealand, Australian Central Banks

October 13, 2008 10:07 a.m. EST

Sydney, Australia (AHN) - To ease worries of Australian depositors as the global credit crunch further worsens, Australian Prime Minister Kevin Rudd announced Sunday a guarantee for all deposits for three years. On the same day, neighbor New Zealand announced a similar policy for all retail banking deposits.

Following Rudd's announcement, stocks of Australian banks gained after $190 billion was erased from the Australian stock market last week. On Monday the S&P/ASX 200 index finished up 220 points or a 5.6 percent gain to 4,180.7 points.

EL&C Baillieu director Richard Morrow said, quoted by the Canberra Times, "The banks are definitely leading this market higher and it's all in reaction to the guarantee plans that have been announced by the federal government."

Meanwhile, New Zealand National leader John Key said he supported the federal government's plan to offer a $150 billion guarantee for retail banking deposits after he received a briefing from Reserve Bank Gov. Alan Bollard Monday. The four largest banks as well as smaller financial institutions indicated they want to be a part of the scheme.

However, the opposition party opposed the scheme because it was made unilaterally. United Future Party leader Peter Dunne said, quoted by the New Zealand Herald, "This is not a political issue, this is an issue that all parties should have been involved in because this transcends the life of this particular government or the next government."

In defense of the government guarantee for New Zealand deposits, Finance Minister Michael Cullen said he had to make a quick decision because it was done in cooperation with Australian officials since both countries agreed to make the announcement at the same time.