Australian banks 'well positioned' to absorb global shocks: CFR
The Council of Financial Regulators (CFR) — made up of Treasury, the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC) — has assured markets of financial system stability.
Notably, the statement included commentary on the recent collapse of three US banks — Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) — with the council holding a special meeting on 10 March to discuss potential implications.
The bank failures were attributed to aggressive monetary policy tightening, poor capital management, and weak deposit inflows.
The regional bank collapses had sent tremors across financial markets, stoking fears of a repeat of the Global Financial Crisis (GFC).
But according to the CFR, the Australian banking system was “well-positioned” to withstand a global crisis, given high levels of liquidity and funding resilience supported by strict capital requirements imposed following the GFC.
“APRA, in consultation with CFR agencies, will continue to closely monitor the situation through its intensive supervision of the Australian banking system, which remains strongly capitalised and highly liquid,” the council noted.
The council also stressed credit quality remained high, with “prudent” lending standards, “strong labour market conditions”, and “high levels of accumulated savings” offsetting risks posed by elevated inflation and aggressive monetary policy tightening.
“At the same time, mortgage payments have increased substantially,” the council added.
“The council recognised that there is significant variation in experience across borrowers, with a small share of households with high levels of debt relative to their income and low savings and equity buffers experiencing debt-servicing challenges.”
The CFR acknowledged looming risks associated with the expiry of approximately 800,000 fixed rate mortgages, but said many of these borrowers have “accumulated material savings buffers” ahead of the transition.
“Council will continue its close monitoring of housing market developments, including lenders' approaches to supporting customers experiencing hardship or other changes in financial circumstances,” the council added.
As regulators moved to shore-up confidence, analysts were debating the significance of developments in the United States.
According to Innes McFee, chief global economist at Oxford Economics, the recent fallout had little resemblance to the pre-GFC meltdown.
Referencing SVB’s failure, McFee said it seems to be the result of a “confluence of a concentrated and flighty depositor base”, and “mismanagement of its liquid asset portfolio”.
“Other banks may have similar flaws, but it seems unlikely that these particular problems are widespread,” McFee said.
The US Federal Reserve’s $25 billion Bank Term Funding Program, designed to boost liquidity in the banking sector, should “limit contagion to other financial institutions”.
But the economist conceded solvency concerns could result in the further tightening of financial conditions, prompting market to price in “some degree of contagion”.
McFee continued: “Regional US bank share prices have already fallen by more than 19 per cent since the start of last week – a comparable drop to that seen in the early days of both the Bear Sterns and Lehman Brothers crises,” he added.
“Although we have not yet seen a significant drop in broad equity indices, it's worth remembering that in both of those episodes bank share prices were a leading indicator.”
AUTHOR
Charbel Kadib
Recommended for you
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
