‘Australia’s Banks Are Unquestionably Strong’: RBA Assures Australians After US Banking Crisis

Pedestrians are reflected in the wall of the Reserve Bank of Australia in Sydney, Australia, on April 2, 2019. (Saeed Khan/AFP via Getty Images)

The Reserve Bank of Australia (RBA) has assured the public that Australian banks are in a solid position despite the high-profile collapses of several global banking organisations lately.

Addressing representatives of financial institutions across Australia during a debt capital market summit in Sydney, RBA assistant governor Christopher Kent said that while Australian financial markets still experienced volatility due to recent events, 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.”

On another issue, he noted that the RBA was currently seeking to reduce the money supply in the economy by allowing the bank’s holdings of government bonds to reach maturity.

Kent also talked about the lag in the transmission of the RBA’s monetary policy, saying the time it currently took for monetary policy to affect household spending was temporarily lengthened by the large portion of fixed-rate mortgages in the loan market and households’ saving buffers.

The assistant governor’s comments come following the takeover of the well-known Swiss bank Credit Suisse.

The takeover, plus the collapses of California-based Silicon Valley Bank and New York’s Signature Bank, have stoked growing fears of incoming instability in the global financial system.

Credit Suisse’s Takeover

On March 19, Investment banking company UBS announced that it would purchase its rival Credit Suisse in a deal worth 3 billion Swiss francs ($4.48 billion) after the Swiss government mediated the merger between the country’s two largest banks to avoid chaos in the financial markets.

Credit Suisse shareholders would receive 1 UBS share for every 22.48 Credit Suisse shares owned, or 0.76 Swiss francs per share, for a total value of 3 billion Swiss francs ($4.48 billion).

The offer price was nearly 60 percent less than Credit Suisse’s March 17 closing price of 1.86 Swiss francs.

A branch of Swiss bank Credit Suisse in downtown Milan, Italy, on March 20, 2023. (Gabriel Bouys/AFP via Getty Images)

As part of the agreement, Switzerland’s central bank committed to providing both institutions liquidity assistance of up to 100 billion Swiss francs “with privileged creditor status in bankruptcy.”

The move comes after a turbulent year for Credit Suisse, which has been hit with a number of scandals, including the leak of bank documents that allegedly identified more than 18,000 accounts belonging to foreign customers, including criminals, dictators, and sanctioned political actors.

Thomas Jordan, the president of Switzerland’s central bank, said the current banking crisis in the United States had exacerbated Credit Suisse’s problems, leading to the downfall of the 167-year-old bank.

UBS chairman Colm Kelleher noted the deal was awaiting final regulatory approvals around the world and that it could take months to complete.

Economists Warn More Banks Could Collapse

Although several countries have taken measures to prevent instability in their financial systems, some economists think there are still risks among global financial institutions.

Pointing to the recent incidents, AMP Capital senior economist Diana Mousina said sharp rises in interest rates were taking a toll on banks.

“This is what tends to happen when you have such a sharp increase in interest rates–the weakest link gets broken,” she told the Australian Broadcasting Corporation.

“And ultimately, we’ve seen that happen in the U.S. last week and with Credit Suisse.”

As such, Mousina also said the risks of some further financial contagion were still quite high in the short term, despite policymakers stepping in to contain the issue.

However, the economist noted a possible positive aspect of the recent turmoil in the global banking sector, as central banks would be under less pressure to lift interest rates further.

“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.”

Emel Akan contributed to this article.