Australia is unlikely to feel the hit of the overseas banking crisis thanks to holding strong on stricter prudential standards, according to Minister for Financial Services Stephen Jones.
Speaking in Melbourne on the last leg of the Quality of Advice Review roadshow hosted by Conexus Financial in partnership with Allianz Retire+, the Minister spoke about the potential impact the collapse of Silicon Valley Bank could have on the Australian market.
It was a brief interlude during the discussions on the QAR, where Jones praised the stricter prudential regulations that were in place.
“Nobody complains about conservative, strict prudential regulation in the middle of a financial crisis. Nobody,” Jones said.
He added that are plenty of people in the lead up to a crisis that will argue the rules are too strict and holding back innovation, and these views should be ignored.
“In the US what you see is the consequence of not holding strong on those issues,” Jones said.
Jones said any saver with money in any banks want to know they’re well-regulated and he thanked the Australian prudential regulators for keeping the industry in a strong position.
“That doesn’t mean that we are immune from the economic impact and fallout for what’s going on in other countries,” Jones said.
“We’re obviously concerned about what is going on in our major trading partners and important economies around the world, but in terms of our own banking system, it’s strong from a capital point of view and well regulated. That’s not where our concerns are, and we can all be grateful for that.”
As reported by Professional Planner sister publication Investment Magazine, APRA has required super funds to report any exposure to SVB.
Deep fall in the Valley
Silicon Valley Bank was put into receivership by the Federal Deposit Insurance Corporation after a run on the bank’s deposits.
The run created a negative cash balance for the bank after it had to sell for a loss fixed interest securities which it bought during the Covid-19 pandemic, when interest rates were lower.
The bank’s parent company, SVB Financial Group, was taken over by Californian regulators and has since filed for Chapter 11 bankruptcy.
The Biden Administration ensured customer deposits would be guaranteed via a levy on the banking industry, but that investors in the bank would carry their own losses.
Deregulation of the US banking industry in 2018 under the Trump Administration reduced the threshold for stress testing liquidity for banks with less than $250 billion in assets.
While the loosening of regulations is widely considered as the reason for the collapse of SVB, several conservative media commentators and politicians in the US have placed the blame on “woke” social policies and have argued diversity quotas and ESG priorities had impacted talent at the bank.
Latest domino to fall
UBS announced its acquisition of Credit Suisse this morning as the Swiss banking industry held crisis talks between its two largest banks on the weekend, following a run on Credit Suisse in the proceeding days.
In a media release on Monday morning, UBS said the acquisition is expected to create a business with more than US$5 trillion ($7.44 trillion) in total invested assets and sustainable value opportunities.
The move will solidify UBS’s position as the leading Swiss-based global wealth manager with more than US$3.4 trillion in invested assets. The combined businesses will be one of the largest asset managers in Europe, with invested assets of more than US$1.5 trillion.
The takeover has been approved by Switzerland’s Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB).
“The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds,” FINMA said in a press release.
“This was intensified by the upheavals in the US banking market in March 2023. There was a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets.”
Based on the Federal Council’s (Switzerland’s executive government) emergency ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion ($160 billion), as well as CHF 100 billion grant by the SNB.
“The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity,” SNB said.
“By providing substantial liquidity assistance, the SNB is fulfilling its mandate to contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end.”
