(6 September 2010 – Australia) New banking liquidity requirements are tipped to drive up the cost of the safest financial assets and force banks into imposing higher interest rates onto customers.To prevent a repeat of the global financial crisis, the Basel Committee has set new global requirements forcing banks to boost the reserves of their top-rated government bonds.
According to research by Citibank, demand for bonds is likely to outstrip supply due to healthy federal and state budgets.
This in turn will push up the cost of bond and therefore bank costs.
The bank’s conservative estimates found that major local banks alone would exhaust the supply of federal and state government bonds.
By 2013, when Canberra issuance is tipped to start falling, Citi predicts a A$27 billion shortage, which would be exacerbated by a likely flood of foreign demand for Australian government paper.
State government debt will also be highly sought-after, it says, as state budgets are on track to hold less debt as a share of output than the Commonwealth.