(1 June 2012 – Australia) The chairman of the Australian Prudential Regulation Authority (APRA), John Laker believes Australian banks could survive for months if Europe’s financial strains caused global credit markets to freeze up again.However, he said, conditions may be volatile for some time.
”The integrity of the euro area and public support for austerity programs in a number of the weaker European economies are being called into question,” Laker told a Senate committee.
”In this highly unsettled environment, global and domestic equity markets have retreated, credit spreads in global funding markets have widened, and prospects for global growth, which were being ratcheted up a little in official forecasts, are again uncertain.
”Our assessment is that the Australian banking system remains well placed to deal with this latest period of market turbulence, which may run for some time.”
He said due to the big four Australian banks having a reliance on global funding markets, exposure to Europe and the turmoil that would accompany any break-up of the euro area would undoubtedly have an effect.
”The banks are well aware of this risk and have planned accordingly,” Mr Laker said.
”The larger banks have been relatively successful in issuing longer-term unsecured offshore funding in recent months, and have mostly completed their planned funding programs for the immediate period ahead.
”Despite the market volatility of recent days, some larger banks have been able to tap offshore term funding sources.”