The Government is offering a $150 billion guarantee for all retail bank deposits in New Zealand, Finance Minister Michael Cullen said today.

Dr Cullen said he would use his powers under the Public Finance Act to introduce an opt-in retail deposit guarantee scheme that was available immediately to any financial institution.

The move comes as countries around the world grapple to deal with the freeze on international credit that is chilling the world economy.

Australia's move to offer an even broader guarantee today would have left New Zealand as one of the few countries in the world without such a policy in place.

Dr Cullen said he had total confidence in the banking sector in New Zealand and did not believe the taxpayer was at risk.

"The scheme will cover all retail deposits of participating New Zealand-registered banks and retail deposits by locals in non-bank deposit-taking entities. This would include building societies, credit unions and deposit-taking finance companies," he said.

The new scheme is an opt-in scheme and would take the form of a bilateral contractual agreement between the Crown and the individual institutions which take up the guarantee.

The scheme will be free for institutions with total retail deposits under $5 billion.

A fee of 10 basis points per annum will be charged on total deposits above $5 billion.

This means that a bank with $20 billion in retail deposits would pay $15 million in fees per annum.

Asked if banks were paying a lot of money for the guarantee, Dr Cullen said: "Not really in terms of the insurance they are getting."

Dr Cullen said the offer would be for a two-year term in the first instance, to give time to see how well international financial markets stabilise in the months ahead.

"The deposit guarantee is designed to give assurance to New Zealand depositors. The New Zealand banking system remains sound. We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions," Dr Cullen said.

The Australian Government yesterday flagged it would be offering a similar guarantee and yesterday Dr Cullen signalled New Zealand would probably follow suit.

"We have no evidence of any risk at all in New Zealand institutions at this point and we are not anticipating any," Dr Cullen said.

The guarantee was offered because Dr Cullen said he would not be comfortable with New Zealand being the only country not offering such a policy.

The contingent liability would go down in the books at $150 billion: "Not one I expect to be called upon because the institutions are extremely sound," Dr Cullen said.

Most of the banking sector cash assets are made up of wholesale banking deposits.

Prime Minister Helen Clark said the decisions about the guarantee had been kept amongst a small circle and the Reserve Bank Governor had been briefing the National Party leadership.

Miss Clark announced the policy at Labour's formal campaign launch in Auckland today.

At the same time, her counterpart across the Tasman, Kevin Rudd, announced his government would guarantee all deposits being held in Australian financial institutions for the next three years.

The blanket guarantee was one part of a three-pronged plan to further safeguard Australians from the fallout from the global financial crisis.

The government will also guarantee all term wholesale funding by Australian banks operating in international markets.

Mr Rudd said this would enable Australian banks to better compete against their global rivals, many of whom were getting guarantees from their governments.

The government will also put another $A4 billion ($NZ6.77 billion) into residential-backed securities to help shore up the Australian mortgage market.