An economist says an extension to the Government's bank guarantee scheme to cover money the banks borrow from overseas, is no nirvana to ensure capital flows freely to companies and households.
The Reserve Bank and Treasury are working through the details of the scheme, which would see the taxpayer support another $300 billion in funding.
The Government announced on 12 October it would guarantee retail deposits for banks, credit unions and finance companies which opt into the scheme, for two years. The potential liability of the guarantee is $450 billion.
Now Treasury and Reserve Bank officials are considering expanding the scheme, to cover money that banks borrow from other financial institutions and overseas, including interbank lending.
The National Party wants the scheme fast tracked, but deputy Labour leader Michael Cullen says there's no hurry as the banks remain sound and it's important to get any scheme right.
BNZ head of research, Stephen Toplis would like to see something sooner rather than later, but says it's complex and more needs to be known about Australia's planned scheme.
But even with a wholesale guarantee, he says the ability of companies to obtain capital is likely to remain constrained because they can't raise funds in their own right or get it from the banks.
Mr Toplis expects corporate funding will remain an issue for some time to come.
Victoria University Professor of economics and finance Roger Bowden says the issue of liquidity needs to be reviewed.
