Prime Minister Kevin Rudd announced on October 12 an unlimited three-year guarantee on all deposits in institutions such as banks, credit unions and building societies to shore up confidence amid the global financial turmoil.

Mr Swan said the government was consulting with industry figures over a plan to charge a fee for guaranteeing deposits worth more than A$1 million (S$999,737) but insisted that the guarantee still stood and was comprehensive.

'What we are looking at doing and we've discussed this with the Reserve Bank, and the Treasury is talking about it, is putting in place a fee above a certain level,' he told the Australian Broadcasting Corporation.

The announcement of the guarantee scheme helped calm stock market turbulence prompted by the credit crunch as Australians breathed a sigh of relief that they would not lose their life savings if banks were to collapse.

But a major political row has erupted over whether it was wise not to put a cap on the amount guaranteed amid reports that investors are fleeing mortgage funds and cash management trusts that are not covered.

'It is a comprehensive guarantee,' Mr Swan told reporters, dismissing reports that the government would impose a cap.

Any decision to impose such an 'insurance premium' on large deposits would be taken in a 'thorough, measured and considered' way following discussions with the regulators and affected parties, Mr Swan said.

Mr Swan defended unrolling the scheme, which also guaranteed banks' wholesale borrowing abroad, at the height of the world financial crisis.

'A comprehensive guarantee was important, but just because there are some particular investments that aren't bank deposits that are not covered doesn't mean to say you don't need a comprehensive guarantee for your banking system.

'We acted to protect the position of our banking system in the circumstance where other countries were moving swiftly to put in place a whole range of guarantees which would have had knock-on effects for our banking system,' he said.

But the Australian Financial Review said on Tuesday that the guarantee had caused a 'dislocation' in the financial sector, which had prompted a run by investors on the country's largest mortgage fund, Challenger Howard.

The paper said Challenger Howard was set to freeze investor redemptions following a rush of withdrawals by those fleeing to banks covered by the scheme.

Mr Swan on Wednesday reassured investors that deposits in mortgage funds and cash management trusts were safe despite their exclusion from the guarantee.

'Their investments are safe,' Mr Swan said. 'But our decision to provide the guarantee will put further liquidity in the system and make sure the very central part of our financial system is stable.' -- AFP