Bank guarantee scores AAA rating from Moody's

The scheme, under which banks will be able to access cheaper funding from offshore money markets, was introduced by the government in a bid to bolster confidence in Australian banks' liquidity and improve competition in the sector.

Although the initial reception of the proposal was tainted by the adverse effect it had on mortgage management funds, the government has since introduced a fee of between $7,000-$15,000 per $1bn raised (dependant on the individual credit ratings of eligible banks), and received its first tick of approval.

According to media reports, ratings agency Moody's became the first to give the scheme the go ahead, expressing confidence that the initiative would not affect the government's own credit rating.

"The likelihood that a situation could unfurl where a large-scale activation of the guarantee would materially impair the Australian government's balance sheet is sufficiently remote as not to weigh on its AAA rating," Moody's told the Australian Financial Review.

Fitch Ratings is yet to announce its position on the scheme.