He said the Government will stand by all deposits in Australian institutions with no cap on the maximum amount.
"The Australian Government will guarantee all deposits whatever their size in all Australian financial institutions for three years," he said.
"This global financial crisis has entered a new and dangerous phase with real consequences for growth, for jobs and therefore for the future," he said.
The blanket guarantee was one part of a three-pronged plan to further safeguard Australians from the fallout from the global financial crisis.
The plan was announced yesterday by Prime Minister Kevin Rudd and will be co-ordinated with New Zealand where our big four banks control 80% of the banking market.
The Australian Government discussed the proposal with New Zealand over the weekend.
The government will also guarantee all term wholesale funding by Australian banks operating in international markets.
Australian banks have an estimated $US120 billion in wholesaling funding rolling over in the next six months to a year.
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 $4 billion into residential-backed securities to help shore up the Australian mortgage market. That's on to of the $4 billion already promised.
"The measures I have announced today are part of also international measures designed to unclog the arteries of the global financial system," Rudd told reporters, according to AAP and TV reports..
Share markets reopen today here after those massive falls last week, especially on Friday, when Australian equities had their worst day since the 1987 Crash, losing more than 8% of their value.
The share futures are pointing to a flat opening, with a gain of 27 points indicated.
That confidence may be wiped out if weekend meetings in Washington and in Paris fail to produce agreements.
Mr Rudd said while Australian banks were well capitalised and well regulated, the measures were needed to help Australian banks compete with others in the international market.
"I don't want a first-class Australian bank discriminated against because some other foreign bank, which has a bad balance sheet, is being propped up by a guarantee by a foreign government," Rudd said.
Under the plan, all deposits in Australian banks, building societies and credit unions, would be guaranteed by the Australian government for the next three years.
The government would also guarantee term wholesale funding to local banks until global financial markets stabilised.
"The measures I have announced today are based on the advice of Australia's economic regulators," he said.
"We are in the economic equivalent of a national security crisis, and the challenges are great."
Earlier, Foreign Minister Stephen Smith told the Ten Network's Meet the Press that the government's budget committee would meet to review action needed in light of the worldwide crisis that is spreading from financial markets to the rest of the economy.
His comments were echoed by Treasurer Wayne Swan who told the ABC TV program Insiders, from Washington: "In a situation like this we will put everything on the table because our bottom line is responsible economic management.
"But all of our promises were affordable and I believe that we have implemented them in line with our election commitments. But any prudent government will look at our current situation, assess what we do next given the global shock then announce those decisions in good time," Mr Swan said.
The Australian dollar also sank last week, recording its worst five-day slide since its float in 1983. It starts the week at 64.8 yen and 64.32 US cents.
Mr Rudd says the crisis will mean higher unemployment in Australia, but he says the Government still intends meeting its election commitments.
Mr Rudd said however that there would be no change to the government's so-called 'Four Pillars' policy that blocks the four largest banks – Australia & New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac – from merging with one another.
Australia's deposit guarantee would last for three years and cover the country's entire deposit base of $A600-$A700 billion, including credit unions and building societies.
New Zealand, which is in recession, has offered to guarantee retail deposits for the next two years, with deposit-taking finance companies also included.
Institutions with less than $NZ5 billion in deposits would have accounts protected for free while those with larger deposit bases and which wanted to avail of the guarantee would be charged a fee of 10 basis points a year (0.10%).
