What does Kevin Rudd’s bank protection laws mean for business?

So what does this decision mean for Australian businesses? Is it a sign that the economic crisis is worsening, or one of the first steps towards recovery?

After spending all week telling Australians that our economy was perfectly placed to weather the crisis in financial markets, Kevin Rudd called an emergency meeting of his closest economic advisers on Saturday.

As well as providing some great photo opportunities (roll those sleeves up and take of those ties men, we’re at war!) the meeting did come up with a big policy decision – the Government will now guarantee every bank deposit held by an Australian bank.

So what does this decision mean for Australian businesses? Is it a sign that the economic crisis is worsening, or one of the first steps towards recovery?

Time for another SmartCompany Q&A:

My mother has been asking me if she should get her money out of the bank and put it under the mattress. Can I tell her deposits are absolutely safe?

You sure can. The Rudd Government has now guaranteed all deposits in banks, building societies and credit unions – including businesses and individuals – for the next three years. There are no limits on deposits either, so savings from $500 to $5 million are now guaranteed.

Under the scheme, if a bank were to collapse, the Federal Government will refund customer accounts. The Government would then recover those payments from the collapsed bank or put a levy on the entire banking sector.

That’s a relief and mum will be happy. Anything not covered?

Basically, this covers bank deposits only. Financial holdings such as superannuation, life insurance and managed funds are not covered.

Fair enough. But I must say I am a bit confused – last week we were told our banks were safe, now it appears they might not be.

The stability of our banks has not changed – they are in a very good position, relative to banks in the US and Europe. The guaranteeing of bank deposits is all about reassuring the public and putting a stop to rumours that banks could suddenly run out of cash. People are nervous and the Government is rightly trying to calm things down and demonstrate it is on top of things.

What else has the Government done to help the banks?

The Government has announced it will pump a further $4 billion into buying residential mortgage-backed securities in order to help non-bank mortgage lenders, taking the total it will inject into the mortgage market to $8 billion.

The Government will also guarantee the borrowings of Australian banks in international credit markets, following the introduction of similar guarantees by other foreign governments.

Will that help unfreeze credit markets? Will the banks start lending to each other – and us entrepreneurs – again?

Unfortunately not – things are still very, very ugly. Yesterday, the head of the IMF, Dominique Strauss-Kahn, said the global financial system was on “the brink of systemic meltdown since mid-September” and growing fears of a global recession mean international credit markets are still extremely tight.

That said, the Australian Government’s banking moves add more weight to efforts of governments around the globe to provide support to the crumbling financial system.

Speaking of international efforts, wasn’t our treasurer Wayne Swan off to a big meeting this weekend? What happened there?

Much to the dismay of investors around the world, not much came out of the meeting of G20 finance ministers (including Swan) or the meeting of G7 heavyweights.

What commentators wanted was a united, co-ordinated plan to tackle this crisis. All we got from the meetings was a promise to take “all necessary steps” to fix the problems. But as one economist wondered this morning, this leaves investors to ask whether these leaders actually know what is best and necessary.

So it’s looking like another grim week. Have you got any good news for us?

Well, the Australian sharemarket is soaring today on news of the Rudd Government’s bank deal and similar moves from European governments. If more governments follow the lead of Australian and European leaders, credit markets should start to stabilise and we can begin the long, slow march to recovery.

Of course, another bit of bad news – such as another banking collapse or the collapse of some big US companies – and things will turn pear-shaped again very quickly.