With less than five months to run until the expiry of the present cap of A$1 million on the Australian government guarantee on bank deposits, financial regulators have finally published their views on reducing that cap.On Friday, Treasury published a consultation paper that canvasses reducing the cap to between $100,000 and $250,000 from October 2011. The revised levels follow advice from the Council of Financial Regulators, which comprises APRA, ASIC and the RBA as well as Treasury.With the financial crisis of 2008 receding and bank deposit flows flourishing, amid a swift rise in the percentage of national income saved, financial regulators are now searching for a more sober setting for the deposit insurance scheme.Treasury cited the present APRA minimum of $250,000 on deposits with foreign bank branches as one suggested amount for a credible future cap.Corresponding schemes in other developed economies, cited by Treasury, cap deposit guarantees at a level that is around two to three times per capita GDP, according to the consultation paper.The proposed cap for Australia of between $100,000 and $250,000 is equal to 1.5 times to 3.9 times per capita GDP, Treasury said.This cap would still cover between 97 per cent and 99 per cent of deposits.Existing term deposits covered under the $1 million cap at October 2011 would retain that coverage for their term or for 12 months, whichever period is shorter.Other tinkering proposed for the deposit guarantee includes a proposal to drop the guarantee on deposits in foreign currencies and on deposits with foreign bank branches.Where bank accounts represent pooled funds (for example, under a trustee arrangement) the scheme will apply the new cap to each beneficiary of the account.A lower cap will disappoint smaller deposit-taking entities. Abacus, the lobby group representing credit unions and building societies, called for the present cap to remain on the grounds that a lower cap would favour major banks.The likelihood of the need for any actual payments on guaranteed deposits is low given APRA's powers to seize control of failing entities and the prospect that they would be taken over, with public sector assistance if needed, before then.