Following the recent US bank collapses and the takeover of Credit Suisse by UBS, Treasurer Jim Chalmers has declared that Australia’s banks remain in a “better position than most”.
According to the Treasurer, Australian banks are “well‑capitalised, well‑regulated, and well‑placed” to deal with volatility in global financial markets and the global economy.
“We are confident but not complacent in the face of these pressures,” Dr Chalmers wrote in a recent opinion piece for the Australian Financial Review.
Dr Chalmers said that local financial institutions are in a better place to deal with volatility than they were in 2008 during the global financial crisis (GFC), following which the Basel III standards on bank regulation, supervision, and risk management were introduced.
He said that Australian banks had substantially increased their capital holdings since the GFC, which are now sitting well above regulatory minimum requirements.
“The total capital ratio of the Australian banking system is currently 17.7 per cent, up from 11.5 per cent in 2008,” he said.
“The quality of banks’ capital has also improved. Australian banks have increased their holdings of Common Equity Tier 1 capital — the highest quality form of capital — from around $136 billion in 2013 to over $274 billion in 2022.”
Additionally, Dr Chalmers said that the banking industry’s weighted average liquidity coverage ratio is “comfortably above regulatory buffers” at approximately 130 per cent, with the total value of high-quality liquid assets held currently over $950 billion.
The Treasurer distinguished the GFC as being very different to what is currently being seen and noted that the GFC was a financial shock that became a demand shock.
“The world is now in the grips of an inflation shock with the risk of a hard landing brought about by the blunt and brutal tightening of monetary policy,” he said.
“But the lessons from 2008 about building resilience in our financial markets could prove vital in safeguarding our economy from the worst of the volatility impacting international markets currently.”
Since the recent market volatility began in early March, Dr Chalmers said that he has received daily briefings on developments from Treasury and APRA.
He has also recently spoken with US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde regarding volatility in the global financial system and the impact of higher interest rates.
“We’re not immune from the volatility we’re seeing in global financial markets but Australians should be reassured that our banks are well‑regulated, well capitalised, and highly liquid and are in a better position than most to deal with these disruptions,” Dr Chalmers concluded.
