Prime Minister Kevin Rudd has taken unprecedented action to safeguard Australia’s banking system, placing the nation on a war-like footing to deal with the global financial crisis.

After two days of crisis talks with senior ministers and bureaucrats, Rudd today announced a three-pronged plan to further ensure the stability of the Australian financial system, including a government guarantee for up to $700 billion in deposits.

The government also will guarantee the borrowings of Australian banks in international credit markets and extend a program to shore up the mortgage market through the purchase of an extra $4 billion in residential mortgage-backed securities.

The measures, Mr Rudd said, were “designed to help unclog the arteries of the global financial system”.

While assuring Australia was well-placed to ride out the financial storm, Rudd likened the current turmoil to a time of war.

“There will be many bumps in the road during the period ahead and the ride will not be smooth,” he told reporters.

“We are in the economic equivalent of a rolling national security crisis and the challenges are great.”

The government is bracing the nation for higher unemployment and softer growth as the market ructions continue on an unchartered trajectory.

“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 government announcement came as the Group of 20 (G20) rich and emerging countries endorsed the use of all available means to deal with the global economic troubles.

However, the G20, like the Group of Seven (G7) global powers, failed to set out a specific plan to help restore confidence in international markets.

All eyes will be on the opening of the Australian sharemarket tomorrow after stocks plummeted eight per cent on Friday, their second biggest fall on record.

The government measures are likely to bolster financial stocks but market watchers are unwilling to take bets on what will happen in such uncertain times.

Commsec chief economist Craig James said the share market was driven by sentiment rather than fundamentals at the moment.

“The futures market is pointing to a gain of 27 points but it’s still very hard to predict,” he said.

“Investors haven’t been given a lot of confidence by the wishy-washy statement coming from the G7, it’s short on specifics.”

Opposition Leader Malcolm Turnbull welcomed the government guarantee on bank deposits and promised to help ensure the passage of any necessary legislation through the parliament.

“It’s a very important step and we will undertake to give the government every assistance in ensuring that the necessary legislation will pass through the parliament promptly,” he told reporters.

Despite his call for bipartisanship, Turnbull claimed credit for the government’s strategy.

The move follows his claims last week that he was responsible for the banks’ decision to pass on to mortgage holders 80 per cent of a Reserve Bank cash rate cut.

“The deposit guarantee and the further investment in the mortgage were recommended by us so we are delighted the government is doing this,” Turnbull told the Seven Network.

“They should be looking at everything that is why … we are so keen to sit down and talk to them about this in a constructive, bipartisan way.”

Rudd indicated treasury officials would brief Turnbull on the most recent government plan.

From today, the government will guarantee all deposits – up from a previous cap of $20,000 – in Australian banks, building societies, credit unions and Australian subsidiaries of foreign-owned banks.

“I don’t want to see unnecessary anxiety out there in the Australian community as ordinary Australians watch the bad news unfold on their television screens from overseas each night,” Rudd told the Seven Network.

The government will also guarantee the borrowings of Australian banks so that they can compete on level terms with international competitors.

“Australian banks, despite the fact that their balance sheets are in excellent shape, now have to compete with these foreign banks for funding on global financial markets,” Rudd said.

“As prime minister of Australia, I will not stand idly by while Australian banks are disadvantaged in international credit market places because of the actions taken by foreign governments in support of them.”