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There is often confusion with borrowers about the government guarantee, particularly in relation to home loans. Some people believe that their loans with the banks are somewhat safer or protected by the guarantee.

There is often confusion with borrowers about the government guarantee, particularly in relation to home loans.

Some people believe that their loans with the banks are somewhat safer or protected by the guarantee.

In the midst of the Global Financial Crisis (GFC) in 2008, the Australian Government took measures to give the banking system stability and reassure people that their deposit funds were safe. The guarantee applies to Authorised Deposit Taking Institutions (ADI’s) where the government guaranteed deposits up to a certain limit. It related exclusively to deposits and qualifying banks, credit unions and building societies who accepted deposits.

The key thing is that it didn’t apply to the lending activities of these institutions. A lot of non-bank lenders only have lending products so they are not ADI’s. In the same way as the banks, their activities are not covered by the government guarantee.

But rest assured, State Custodians wholesale funder raises its funds by issuing AAA rated bonds to institutional investors like Australian superannuation funds. At the end of the day, when you borrow for a home loan, the risk is with the lender that you will make your repayments. It is very different to you investing your own funds and the government protecting the savings of individuals during a crisis.