Australian government under pressure to withdraw bank guarantees

With economic recovery well under way spearheaded by the banking industry, the Australian government is coming under pressure to bring its banking guarantees to an end.

"These temporary arrangements must ultimately be withdrawn, as it is in the long-run interest of institutions and the financial system for institutions to rely on their own credit standing for funding," the Reserve Bank of Australia's (RBA) said in its half-year Financial Stability Review.

The review, released yesterday, said Australian banks were not under any threat, with bad debts only a fraction of those experienced in the 1990s recession, and profit levels stabilised.

Bank share prices have risen by 75 per cent since March, it noted.

However, the G-20 finance ministers early this month have agreed to keep the stimulus packages intact until the economy reels back to normalcy (See: G20 ministers agree to keep stimulus programmes going until full recovery).

Speaking at the summit, Britain's prime minister Gordon Brown warned that the world's tentative recovery from the downturn would be at risk if the fiscal stimulus packages are withdrawn too soon.