Key Points
- A senior RBA figure said volatility has picked up in Australian markets but banks are strong.
- UBS Group has taken over troubled rival and large bank Credit Suisse.
- Two banks collapsed in the US as global financial markets face headwinds.
A senior Reserve Bank official says Australia’s banks are “unquestionably strong” despite financial stability concerns rocking global markets.
The comment by Reserve Bank of Australia assistant governor for financial markets Christopher Kent comes in the wake of UBS Group’s takeover of troubled rival Credit Suisse.
The drama surrounding the major Swiss bank, coupled with the failure of two smaller US banks in the past fortnight, has sparked concerns over the health of the global financial system.
In a speech to KangaNews DCM Summit in Sydney, Dr Kent said volatility in Australian financial markets had “picked up” but they were “still functioning”.
“And, most importantly, Australian banks are unquestionably strong – the banks’ capital and liquidity positions are well above the Australian Prudential Regulation Authority’s regulatory requirements,” he said.
“Banks are already well advanced on their bond issuance plans for the year and could defer their bond issuance for a while.
“Even if markets remain strained for a time, Australian banks’ issuance will continue to benefit from the strength of their balance sheets.”
Some analysts say sharp interest rate rises are taking their toll on Australia’s economy. Source: AAP, AP / Mark Baker
Under the Credit Suisse deal, Swiss banking giant UBS will pay three billion Swiss francs ($A4.82 billion) for its biggest rival and assume up to $US5.4 billion ($A8.1 billion) in losses.
The deal will be backed by a massive Swiss guarantee and is expected to close by the end of 2023.
The acquisition follows efforts in Europe and the United States to support the sector since the failure of US lenders Silicon Valley Bank and Signature Bank.
AMP Capital senior economist Diana Mousina said sharp increases in interest rates were taking a toll.
She said Credit Suisse had been plagued with issues for months, including management deals, negative cash outflow and a declining share price.
“This is what tends to happen when you have such a sharp increase in interest rates – the weakest link gets broken. And ultimately we’ve seen that happen in the US last week and with Credit Suisse,” she told ABC News on Monday.
She said there was a risk that there would be more to come despite moves by policymakers to keep the issues contained.
“But the risks of some more financial contagion is still quite high, at least in the short term,” Ms Mousina said.
One possible upside to the banking sector turmoil, she said, would be less pressure on central banks to hike interest rates as far and as fast.
“That reduces the risk of a recession, because it means that the central banks need to hike by less and that should be positive in terms of containing the broader risks to the market and to the economy.”
Discussion about this post