TPG25-14 Acceptance of Guarantees from Financial Institutions by Government Agencies

The purpose of this Policy is to ensure that Financial Institutions that provide Guarantees to Agencies have the appropriate capacity, and willingness, to pay in the event of an Agency needing to call on those Guarantees.

Agencies may accept a Guarantee from a Financial Institution, where that Financial Institution:

• is regulated by the Australian Prudential Regulatory Authority (APRA), and
• satisfies the Credit Quality Test in this Policy,

OR

• has been pre-approved by the Secretary (a Treasury Approved Guarantor), as listed in Schedule A.

Where a Financial Institution does not satisfy either of the two criteria above, an Agency must seek the Secretary’s (or Delegate’s) approval to accept a Guarantee from that Financial Institution (a Treasury Approved Guarantee).

A Guarantee which satisfies one of the above conditions is a Compliant Guarantee. 

Background

Agencies may require a Guarantee to protect against the failure of a Counterparty to perform its contractual obligations. Guarantees are a promise of financial payment, whereby the Guarantor undertakes to pay the beneficiary of the Guarantee. The Guarantee transfers the financial risk associated with a Contract from the Agency to the Financial Institution that issues the Guarantee, provided the Financial Institution can pay (up to the value of the Guarantee).

It is important to note that an Agency may require other security in addition to a Guarantee. This Policy does not address any additional forms of security, such as parent Guarantees.