Submission to the Senate Economics Committee on Bank Funding Guarantee

The Secretary of the Senate Committee on Bank Funding Guarantee advised that the Committee is interested in having a submission from me on the guarantee scheme. Accordingly, I am making this submission. Soon after the blanket guarantee was announced, I commented on the decision in The Australian through two op-eds. I argued that it would accentuate moral hazard and distort consumer incentives and risks significantly and suggested that the guarantee be wound back. In this submission, I elaborate on some of the earlier arguments and also advance a few more for consideration by the Committee. The arguments have been supported with relevant data and literature.