in case you thought Australia understood banking

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Or maybe the money fund lobby is in control.

As always, the liability side of banking is not the place for market discipline.

Australia Removes Funding Guarantee Even as Economy Is Fragile

By Shani Raja

Feb. 8 (Bloomberg) — The Australian government is withdrawing a guarantee on large deposits and wholesale funding that helped banks access credit after the global financial crisis, even as the economy overall remains “fragile.”

The program is being withdrawn on March 31 on the advice of the Council of Financial Regulators, Treasurer Wayne Swan said in a news release yesterday. The removal of the guarantees indicates the nation’s banks are recovering from the impact of the credit crunch.

“This is a definite milestone on the road to recovery from the global financial crisis,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “It’s an indication the worst is over and that banks don’t need a government guarantee to legitimize them as deposit-taking entities.” A plan that gives certainty over deposits of up to A$1 million ($870,000) won’t be affected, Swan said.

The bank guarantees were introduced in October 2008 after the collapse of Lehman Brothers Holdings Inc., which roiled financial markets worldwide and helped precipitate a global recession. They enabled Australian banks to raise funds on international markets, helping lenders avoid the sorts of bankruptcies that hampered the U.S. financial system.