(20 October 2011 – Australia) Reserve Bank of Australia (RBA) assistant governor (financial markets) Guy Debelle said yesterday that the country’s banks had lowered their exposure to European markets and are more resilient now.’We are not seeing the same sort of stresses for the Australian banks, as are present for some of the European banks,’ Mr Debelle said in a speech in Sydney, noting the RBA’s provision of liquidity for banks hasn’t changed in recent times.
Debelle said Australian banks had even been beneficiaries of US money market funds reallocating away from European banks.
The comments signal Australia’s central bank is less concerned about the prospects for its financial institutions as it continues to debate the future path of monetary policy.
This week the RBA left open the possibility of a cut in interest rates as early as November saying confirmation of an improved inflation outlook in data next week could provide scope to ease monetary policy.
Concerns in Australia surrounding the crisis have largely focused on the exposure of Australia’s banks to wholesale funding markets, given many of the country’s large financial institutions fund their operations overseas.
Debelle highlighted one concern: the large rise in credit default swap, or CDS, premiums for Australian banks, noting a three-year CDS premium for Commonwealth Bank of Australia bonds has risen about 80 basis points in the past few months.
Though he noted the CDS premium ‘does not have a lot of trading volume behind it, which potentially allows traders a cheap way to take a position’.