CANBERRA - SAVERS are fleeing foreign banks in Australia in favour of safer local accounts, regulators said on Thursday, as the opposition accused the government of 'bungling' its guarantee on deposits.

The opposition moved to censure the government in parliament for acting too hastily and not capping the amount of guaranteed deposits and for 'inept economic management'.

Prime Minister Kevin Rudd on October 12 unveiled an unlimited three-year guarantee on all deposits in local institutions as part of moves to calm volatile markets and boost confidence battered by global financial turmoil.

The market welcomed the move, modelled on schemes in other countries, but doubts have surfaced over whether it could spark a run on institutions that are not covered, including foreign banks, mortgage funds or wealth management funds.

The banking regulator revealed on Thursday that depositors had withdrawn substantial amounts of cash from branches of foreign-owned banks since the guarantee was announced.

'I would say the outflow is continuing but it has slowed ... but it is variable from institution to institution,' Wayne Byres, from the Australian Prudential Regulation Authority (APRA), told the Senate economics committee.

'In some cases it has been very large,' he said. When asked if the amount being withdrawn was in the billions, Mr Byres said: 'I would hesitate to say definitively yes, but it is certainly very substantial.'

Foreign bank branches wrote to regulators on October 17 airing their concerns about the consequences of the guarantee.

But APRA chairman John Laker told the Senate committee on Thursday that withdrawals had slowed ahead of a further announcement on the scheme after Swan aired the capping plan.

Opposition leader Malcolm Turnbull introduced a censure motion against government in parliament, saying the unlimited guarantee had caused a 'dislocation' in the financial system.

'We got an unlimited guarantee and we have seen ... cash management funds, institutions that are not covered by the guarantee losing money to those guaranteed institutions,' Mr Turnbull said.

The motion was defeated by Mr Rudd's ruling Labor Party.

Under political pressure, Swan announced earlier this week that he was considering imposing a fee on deposits of more than one million Australian dollars (S$1 million).

While he insisted the move was simply a fine-tuning of the emergency scheme and that a charge may be applied to large deposits, the opposition insists the government acted without thinking and was trying to fix the damage.

Opposition MPs has described a proposed insurance fee on large deposits, in return for an unlimited government guarantee, as effectively a new tax.

The government has yet to decide whether it will be the depositors or the banks that will have to pay the fee.

'They should ... admit that they've introduced deficient legislation and now that they've established a deposits tax, admit that they are taxing Australian savers even more than they were being taxed before,' MP Christopher Pyne said.

'That has dislocated the markets even further because people will take their money out of guaranteed institutions to avoid the fee putting them in potentially riskier investments,' he said describing the moves as the 10-month-old government's 'most substantial bungle'.

The Australian Financial Review reported on Tuesday that the country's largest mortgage fund, Challenger Howard, was set to freeze investor redemptions following a rush of withdrawals by those fleeing to guaranteed banks.

But Mr Rudd has insisted quick and decisive action had been needed to improve confidence and ease the market turmoil in Australia, saying it would have been irresponsible not to act. --AFP