Concern - on both sides of the Tasman - that investors will flee from unguaranteed funds to the recently government-guaranteed deposit schemes have been raised in Australia.
In the short term it appears the blanket Australian guarantee on private and wholesale deposits could make it more difficult, rather than easier, for Australian businesses to raise cash, which raises similar issues here.
More than a week ago, the Australian Government moved to guarantee bank deposits and wholesale interbank lending for three years.
The New Zealand Government followed suit, guaranteeing bank deposits for two years, which was followed by mounting pressure to extend the coverage to New Zealand banks' wholesale lending.
However, if investors leave traditional low-risk safe havens of investment, it could leave governments and local governments, who both issue bonds to raise money, and corporate entities short of cash to underpin major projects.
Both banking systems have relatively little exposure to the credit crisis fallout from the US subprime debacle, but had to be seen to be acting proactively in line with governments around the world at present pouring billions into ailing financial institutions and banks.
The Reserve Bank of Australia is warning its Government the blanket guarantee on private and commercial deposits was creating a "serious dislocation" in the financial system, while some Australian investment banks warned the Government their exclusion from the guarantee was damaging their ability to lend to the corporate and mortgage market, The Australian reported earlier in the week.
New Zealand economists have already raised concerns that without the New Zealand Government extending its guarantee to wholesale (interbank) lending in New Zealand there could be a flow of funds from here to Australia, where their funds would be guaranteed.
ABN Amro Craigs broker Peter McIntyre said the airports of Wellington and Auckland had both recently had to to rearrange finances, having struck problems with the usual wholesale market funding lines.
The pair would likely have gone to their respective bankers to fund infrastructure and operational costs, but this would have been at a higher rate.
"This lack of funding, especially for infrastructure requirements, is not what you want to see when the world's economies are in crisis.
"If they are not spending, the effect ripples down through the entire economy," Mr McIntyre said.
Similarly, the Dunedin City Council had to pay a "less than 0.5%" increase in interest last week when a fortnightly-agreed debt repayment deal for $26 million was not acceptable to the trading banks involved but was resolved within a day.
At the time, council finance and corporate general manager Athol Stevens noted the government guarantee was driving investors to "wherever they get a guarantee", noting Australian local bodies were guaranteed while New Zealand's were not.
Reserve Bank of Australia governor Glenn Stevens said in Sydney yesterday he supported the Federal Government's guarantee of bank deposits, but more work might be needed to iron out the plan's details.
The Government's bank guarantee had imperilled some non-Australian banks and money-market funds that do not enjoy the benefit of the guarantee, The Sydney Morning Herald reported.
Mr McIntyre said New Zealand banks with S&P ratings from AAA through to BBB were being treated the same as the higher-risk finance companies and credit unions.
If New Zealand banks became "cash starved" they might have to increase their mortgage interest rates, or ration credit to maintain margins on mortgage lending, he said.
"This type of flow of capital is not efficient for the economy. It is going to wrong places at higher costs," Mr McIntyre said.
Treasury has not published a list of building societies, credit unions and deposit-taking finance companies which have applied for inclusion in the $150 billion New Zealand Government guarantee, but it is expected to shortly begin almost daily announcements of which organisations have been successful in their applications.
