Central banks around the world take steps to get money moving in the world banking system.

With global financial conditions deteriorating alarmingly in early October 2008, many governments around the world, including Australia, Britain and a number of European countries, took steps to guarantee bank deposits.

The Prime Minister announced the Federal Government would guarantee all deposits of Australian banks, building societies and credit unions and Australian subsidiaries of foreign-owned banks for the next three years.

The guarantee applies to all types of deposits regardless of the type of account through which the deposit is made.

For example, it includes:

• savings accounts
• passbook accounts
• cheque accounts
• pensioner deeming accounts
• term deposits
• mortgage off-set accounts
• farm management accounts
• first home savers accounts
• retirement savings accounts

Both retail and wholesale deposits are covered by the guarantee.

The guarantee applies to deposits held by all types of legal entities in Australia, including individuals (and joint accounts), partnerships, businesses, trusts and government entities and applies to deposits denominated in any currency.

The Government also announced a guarantee of term funding for Australian owned banks, Australian subsidiaries of foreign owned banks, building societies and credit unions.

The funding, offered in return for a fee, would enable these institutions to raise funds overseas in the current tight conditions. The Federal Government advised that the facility will be withdrawn when market conditions normalise.

According to the Federal Government, the guarantee covered 15 million deposit accounts covering $800 billion and fund raising facilities of $1.2 trillion used by financial institutions to finance small business investments and home loans.

Initial reaction to the guarantee was positive with commentators saying the Federal Government didn't really have a choice given the turmoil in world financial markets.

However, the debate then moved onto whether mortgage trusts, non-listed property trusts and debentures should also be included in the guarantee and whether deposits over a certain amount should attract a fee.

Later in October, the Treasurer released details on the deposit and wholesale funding guarantees, advising that deposits over $1 million will be charged a fee to receive the benefits of the deposit guarantee. The fee applies from November 28 2008.

Also, the Federal Government advised that foreign bank branches will be able to access both the deposit guarantee in respect of domestic deposits held by Australian residents and the guarantee for short-term wholesale funding raised from Australian residents.

With regard to mortgage trusts and other managed funds which fall outside the regulation of APRA, the Government continues to assess appropriate actions in consultation with the industry.