The impact of deposit guarantee scheme on operation of Australian financial institutions

Abstract

During the global financial crisis (GFC), the Australian government introduced a deposit guarantee scheme to all the deposit accounts with financial institutions. The scheme is very similar to a deposit insurance scheme to a certain extent, though the premium is not paid by the financial institutions or the depositors. This study adopts Data Envelopment Analysis (DEA) and Malmquist productivity index (MPI) to investigate the impact of the funding scheme on Australian financial institutions during and after the GFC. The study measures the productivity and efficiency gains of large financial institutions, regional banks, credit unions and building societies for its analysis. This data spans the period from 2000 to 2014 and uses financial institutions’ input and output variables. The study finds evidence that an ex-ante insurance scheme has a profound impact on the structure and funding of Australia’s current insurance scheme. The research contributes to the body of knowledge of the current literature on the deposit guarantee scheme and the practical understanding of a deposit insurance scheme from an Australian perspective.