Threat of run on Suncorp 'led to imposition of bank guarantees'

Canberra first canvassed the opinions of leading business figures as the global credit crisis sent markets into a tailspin. Corporate adviser Mark Korda told BusinessDay he was among those telephoned by government officials expressing concern.

This confirms speculation that Suncorp's precarious financial position spurred the Government to act swiftly in bringing in the deposit and wholesale funding guarantees to thwart a run on the bank.

The co-founder of KordaMentha, a firm with broad insolvency experience thanks to the administrations of Ansett and Westpoint, said his advice had been sought on the status of the regional banks.

"We were called on the Friday that the market fell," Mr Korda said. "We were asked for some input on that day regarding the proposed bank guarantee. Look, I think it's no secret that Suncorp-Metway was the bank that was under pressure; there was a fear of a run on one of the regional banks, and Suncorp was the one the Government and many others thought might be the most vulnerable."

He said that he agreed that a guarantee of deposits was necessary. "I have absolutely no doubt that, without that government guarantee, there would have been a run on one or more regional banks in Australia," he said. "The Government acted very quickly and the actions they took that weekend and the stance they made averted that."

Merrill Lynch Australia's chief executive, Paul Masi, said he was aware of the problems the bank sector was facing that week and believes a run on them had already begun.

"Even the big banks were seeing people lining up and taking cash out," Mr Masi said. "Any bank, no matter how big, if we all walk up to take our money out, then the bank is stuffed."

On the day of the frantic ring-around, October 10, the All Ordinaries index recorded its worst session since the October 1987 crash.

Two days later, the Prime Minister, Kevin Rudd, announced the unlimited guarantee of deposits, which removed the threat of a run on an Australian bank. The banks remain underpinned by the guarantees despite the stabilisation in financial markets over recent months.

A spokesman for Suncorp said yesterday that the "notion that the Government guarantees on wholesale funding and bank deposits were introduced solely for Suncorp's benefit is both simplistic and wrong".