Representatives of foreign banks operating in Australia have called on the government to extend its deposit guarantee to cover their holdings.

More than 30 foreign banks with assets of around $US247 billion operate in Australia.

Executive director of the Australian Financial Markets Association, Duncan Fairweather, says the government guarantee on deposit holders with national banks has disadvantaged foreign institutions, and is limiting their ability to lend within Australia.

"The downside is that lending from those branches to Australian business for business development purposes would be curtailed."

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