Upcoming Mallesons seminarsAustralian and foreign banks and other authorised deposit taking institutions (“ADIs”). Depositors with ADIs. Arrangers, dealers and underwriters of debt securities issued by ADIs. Investors in those securities.
What do you need to do?Consider whether to apply for coverage under the Guarantee Facility. Understand how the Guarantee Facility impacts you. Consider whether debt securities you hold, or intend to hold, will be covered by the Guarantee Facility.
Greg Hammond
Partner
Ian Paterson
Partner
Greg Hammond
Partner
T +61 2 9296 2487
Ian Paterson
Partner
T +61 3 9643 4237
Sydney
Scott Farrell
Martin James
Melbourne
Katherine Forrest
Perth
Nicholas Creed
Brisbane
Berkeley Cox
Hong Kong
Richard Mazzochi
(馬紹基)
London
Rowan Russell
The Australian Government (“Government”) has today published its guarantee facility under which Australian authorised deposit-taking institutions (“ADIs”) may apply to have deposit amounts over A$1 million and certain funding liabilities guaranteed by the Government. Foreign banks (“Foreign ADIs”) authorised to carry on banking business in Australia under the Banking Act 1959 may also apply to have certain deposits and funding liabilities held by Australian residents guaranteed by the Government.
The Guarantee Facility will take effect on 28 November 2008 and replace the interim Deed of Guarantee issued on 2 November 2008.
The Guarantee Facility comprises a Deed of Guarantee (“Guarantee”), executed by the Treasurer, and a set of Scheme Rules (“Scheme Rules”) which set out the eligibility criteria and application process for how ADIs may apply for the Guarantee. The text of the Guarantee and the Scheme Rules can be found here.
Which institutions are eligible?
Only institutions which are ADIs under the Banking Act 1959 are entitled to apply for the Guarantee.
How can an ADI apply to have the Guarantee apply?
The Reserve Bank of Australia (“RBA”) will administer the Guarantee Facility.
In order to have the Guarantee apply, an ADI must apply to the RBA for an eligibility certificate. Fees will also be payable, calculated by reference to the term and amount of the liabilities guaranteed and the credit rating of the ADI.
An ADI may apply for an eligibility certificate in respect of a programme under which it issues debt instruments from time to time or on a series-by-series basis.
An application must set out details of the liabilities to be guaranteed and be accompanied by an executed counter indemnity in favour of the Government, external legal opinions in a prescribed form, an executed fee letter and a letter of prudential compliance. Further information with respect to the application procedure and fees can be found here.
What liabilities can be guaranteed?
If the ADI is an Australian ADI or an Australian subsidiary of a bank incorporated overseas, it may apply for the Guarantee to apply to:
- Deposit liabilities for amounts over A$1 million: The deposit can be at call or with maturity of up to 60 months in excess of $1 million per customer per ADI, be in any currency and may pre-date the Guarantee (for details with respect to deposits of A$1 million or less which are covered by the Financial Claims Scheme, see this previous alert). Deposits held in overseas branches of Australian-owned ADIs can be covered by the Guarantee. A non-exhaustive list of sample accounts can be found here. There are no restrictions on the types of depositors
- Short Term Wholesale Funding Liabilities: The liability (which may be in any currency) must be a senior and unsecured debt instrument with a maturity not exceeding 15 months. In addition, the instrument must be “not complex” and be either a bank bill, a certificate of deposit or transferable deposit, a debenture or commercial paper, and
- Term Wholesale Funding Liabilities: The liability (which may be in any currency) must be a senior and unsecured debt instrument with a maturity not exceeding 60 months but greater than 15 months. The instrument must also be “not complex” and be either a bond, a note or a debenture.
Foreign ADIs may only apply to have the following products guaranteed:
- Deposit Liabilities: The deposit can be at call, in any currency and pre date the Guarantee. However, it must not have a maturity going beyond 31 December 2009. The deposit must be held by a person treated as an Australian resident for the purposes of Australian income taxation law (“Australian Resident”), and
- Short Term Wholesale Funding Liabilities: The liability (which may be in any currency) must be a senior and unsecured debt instrument with a maturity not exceeding 31 December 2009. In addition, the instrument must be “not complex” and be either a bank bill, a certificate of deposit or transferable deposit, a debenture or commercial paper.
In the case of all instruments, they may be issued in bearer, registered or dematerialised form.
What is a “complex” instrument?
An instrument will not be granted an eligibility certificate unless it is “not complex”. The Government has published guidelines on the features that are likely to be regarded by the Government as “complex”.