Prime Minister Kevin Rudd said yesterday local banks remained in first class shape but the global financial crisis was affecting confidence across the world, including in Australia.

Mr Rudd said Australia was better positioned than practically every other country to see its way through the crisis.

But, he said, the Government had decided on three further measures to maintain continued stability of the Australian financial system.

The measures announced would “unclog the arteries of the global financial system” which had dried up credit because of fears banks would fail, he said.

The Government will:

• Guarantee all term wholesale funding by Australian banks operating in international credit markets. This means anyone lending money to an Australian bank has an absolute assurance their money is safe.

• Guarantee all deposits of any size in any financial institution for the next three years. The Government originally proposed that be $20,000 or less.

• Direct the Australian Office of Financial Management to purchase an additional $4 billion in residential mortgage backed securities. This will ensure the Australian mortgage market has access to sufficient funds for future operations.

Mr Rudd said many foreign banks, much less well run and regulated than Australian banks, were now guaranteed by their governments, placing local banks at a disadvantage when competing for funding on global markets.

“I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments in support of them,” he said.

He said in return for the guarantees, banks would have to pay an insurance premium.

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