The Federal Government has announced plans to permanently lower the level of insurance it will offer from $1 million to $250,000.


The insurance scheme, which was first introduced during the global financial crisis, was designed as a temporary fix to ensure that individual losses were kept to a minimum.


Treasurer Wayne Swan said the Council of Financial Regulators recommended the move and that insurance will continue to cover 99 per cent of Australian deposit accounts.


While the move has attracted some criticism, Australian Bankers Association's Steven Munchenburg says it is a good move.


"What the government announced yesterday is a good balance between making sure that depositors have got that extra guarantee, but also not sending a signal to the rest of the world that there is anything wrong with the Australian banking system," Mr Munchenburg told the ABC.