The Government will charge financial institutions for providing the guarantee and will withdraw the facility once market conditions have ''normalised''. In effect the Government will insure the eligible liabilities of Australian financial institutions.

Mr Rudd said the charge for the guarantee ''will be levied at an appropriate rate determined between Treasury and [the banks and financial institutions], which will go to ensure that this is not simply a free gift from the Government by way of a guarantee to the banks''.

Mr Rudd also announced the Government would direct the Australian Office of Financial Management to buy an extra $4 billion in residential mortgage-backed securities. This is in addition to the $4billion of Government funds already committed to home lending and is intended to ensure the Australian mortgage market has access to sufficient funds.

The Government's announcements follow crisis talks at the weekend between the Prime Minister, senior ministers and officials.

The decision to guarantee all bank deposits for three years brings Australia into closer alignment with other countries that have recently established their own bank deposit guarantees as part of efforts to combat the deepening global financial crisis.

Earlier in the day Treasurer Wayne Swan said Australia's banks and financial institutions remained sound and he did not expect the deposit guarantee to be called on.

''I don't expect we'll need to put those [arrangements] into effect at all ... I certainly don't expect that.''

The Prime Minister also emphasised the resilience of Australia's financial institutions but said the additional measures he was announcing were necessary to ensure the sector remained internationally competitive.

The announcements followed several days of speculation that the Government would increase the scope of deposit protection which the Government proposed last week to extend to a maximum of $20,000 in part to ensure Australia's banks remained internationally competitive. ''Australian banks, despite the fact that their balance sheets are in excellent shape, now have to compete with these foreign banks for funding on global financial markets, foreign banks which despite their weaker balance sheets now have the advantage of a Government guarantee'', Mr Rudd said.

''As Prime Minister of Australia, I will not stand idly by while Australian banks are disadvantaged ... because of the actions of foreign governments.''

Federal Opposition Leader Malcolm Turnbull endorsed the Government's decision to guarantee all bank deposits.

''The Opposition welcomes the decision taken by the Prime Minister today to provide a guarantee for all deposits in Australian ... institutions, banks, credit unions, building societies and so forth.

''It's a very important step and we will undertake to give the Government every assistance in ensuring that the necessary legislation will pass through the Parliament promptly.''

Mr Turnbull again called on the Rudd Government to delay the roll-out of its planned emissions trading scheme to reduce uncertainty faced by business amid the financial crisis.

''The Coalition [government] proposed an emissions trading scheme in 2007 and our best advice, and best judgment, was that it couldn't reasonably ... start until 2011,'' the Opposition Leader said.

''We'd recommend to the Prime Minister that he ... postpone the introduction of any ETS until we are fully informed of the global response which cannot be until the end of next year.

''This ETS, the rushed introduction of it, is causing considerable uncertainty ... particularly with business.''

Credit unions and mutual building societies applauded the Government's ''strong and decisive move''.

The chief executive of Abacus, the industry body for credit unions and mutual building societies, Louise Petschler, said ''the guarantee removes any worry for Australians'' about their deposits.

with AAP