Australian banks more resilient than European: RBA

Australian banks are coping well with the current global market stresses in contrast to the challenges faced by their European banking counterparts, according to RBA assistant governor Guy Debelle.

Addressing the 24th Annual Finance and Treasury Association Congress in Sydney today, Debelle said Australian banks' funding structures were “considerably more resilient to periods of stressed markets than they were previously, given the changes that have occurred over recent years” compared with the stresses felt in Europe.

During the address, Debelle noted the funding pressures being felt by European banks and the need for European Central Bank funding support.

“The cost of funding for European banks generally has risen, while many banks in the European ‘periphery’ countries have all but been locked out of funding markets,” Debelle said.

In contrast he said, the equivalent spread between the bank bill rate and the expected cash rate in the Australian market while higher than earlier in the year, “had remained markedly lower than that in Europe”. 

“To mitigate the impact of the sharp increase in the cost of unsecured interbank lending for European banks, the ECB has recently announced an expansion of its open market operations. Since May 2010, the ECB has stood willing to provide three month funding to banks in unlimited amount (against acceptable collateral) at its policy rate,” Debelle said.

“By way of contrast, the RBA's provision of liquidity has not changed in recent times. Australian banks' deposits with the RBA have remained around $1.25 billion for over 18 months now. More generally, we see little sign of strain or counterparty concern in the local interbank market.”

He also highlighted the fundamental differences in offshore funding costs for Australian banks versus those faced in Europe noting that the cost of swapping Australian dollars for US dollars has not increased in the most recent episode and indeed has gone negative at times.

In contrast the cost for European banks to obtain US dollars “has increased substantially since May this year, although it remains below the peaks post-Lehman [Brothers’ collapse]”.