Australian banks are prepared to withstand a “real Armageddon” if global instability worsens and turns into a contagion.
That’s one of the headline take-outs of a recent webinar with FINSIA Fellow Christopher Bell, examining how worried we should be about another Global Financial Crisis.
Chris – a Chartered Banker and former Queensland Regional Council member – highlighted the ongoing rigorous stress testing being carried out by APRA as one of the reasons he was able to signal a cautious sense of optimism.
Asked questions around the likelihood of a Silicon Valley Bank-style event in Australia or a repeat of the GFC, he said the chance is low, and he was cautiously optimistic Australia could withstand if the banking sector did experience fragilities.
Banks are constantly providing data to the Regulators and stress tests are coordinated global and are happening in the United States, Europe, and Australia, he said.
A run on the banks - that have deposit guarantees of $250,000 - is unlikely, as they “are looking strong”. Australian banks are early adopters of the BASEL 3 regime, an international framework to make global banking more resilient, and have the required capital buffers in place to ensure they are resilient to a repeat of the GFC.
“We are not completely immune. We are inextricably linked to the global system,” he said.
“We do have more funding offshore, but the RBA and APRA are alert to this.”
While noting the RBA had been criticised, Chris praised them for providing a great deal of support to banks. Focusing on the work carried out by APRA, he explained why he felt confident enough to back Australia’s resilient, profitable banking system. This issue recently witnessed in the Swiss banking system with Credit Suisse being taken over by UBS was largely due to Credit Suisse being unprofitable for the past few years, and investors had lost confidence in this institution.
“The good thing with Australia is APRA has been doing stress tests on the largest Major banks and large regional banks.
“I crunched the numbers, and we have got about $3.3 trillion in credit across households and business. Those 10 institutions make up 87%.
“APRA did stress testing and looked at scenarios around a drop in property prices of just over 40% and unemployment going to 11% - which is mid-threes at the moment - GDP dropping 4%, Credit Rating downgrades, offshore funding markets shut, bank dividend cuts, and mortgage owners with negative equity.
“A real Armageddon and the banks survived”.
“Australian banks found different funding sources. The capital provided the buffers, so if a contagion came, Australia would be in a much better position than we were in the GFC.”
Find out more from the webinar on-demand here as Chris spoke about the importance of financial stability, and the roles of market participants and the regulators play.
The session also covered changes in regulation and bank balance sheets since the GFC – and the introduction of the BASEL 3 regime.
