Regulators have gone beyond global banking regulatory requirements in several important areas, which has paid off in the weeks of turmoil after the failure of SVB.
Nevertheless, while capital and liquidity buffers are vital, the failure of Credit Suisse showed a major bank can topple when the market loses faith – even if capital is strong. Indeed, only nine months ago, a US Federal Reserve stress test of European lenders found Credit Suisse was third-strongest out of 33 tested for capital resilience.
Unlike the regional banks in the US, whose books are more orientated to business loans, smaller banks in Australia mostly lend for housing; in the customer-owned mutual bank sector, for example, 75 per cent of lending is for mortgages. While home loans are not without risk, they are considered safer than corporate exposures.AP
“The significance of this measure in light of current events is hard to overstate,” Lonsdale continued. “SVB’s exposure to rising interest rates was one of the main factors behind its collapse. In contrast, as markets moved in response to RBA changes in the official cash rate, Australian banks have had to hold additional capital.
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