Australian banks tighten offshore funding
(29 June 2011 – Australia) Australian banks will continue lowering their overseas funding exposure and reduce their reliance on wholesale funding from offshore according to a senior central bank official.
Overall, Australian banks are also raising less than are their global counterparts, on a relative basis, which is likely to continue for some time, said Guy Debelle, Assistant Governor (financial markets) at the Reserve Bank of Australia (RBA).
'In net terms, the banks have been repaying their foreign liabilities,' Mr Debelle said at a speech in Sydney, adding that market participants are too focused on banks' liabilities in the wake of the credit crisis and not paying enough attention to assets.
A key component of Australian banks' exposure to a potential Greek crisis, said Mr Debelle, is that if a liquidity issue were to arise around the banks' funding, it is noteworthy that Australian banks' foreign currency-denominated funding is fully hedged into Australian dollars.
'An Australian dollar liquidity issue can be addressed by the Reserve Bank. The Reserve Bank can meet a temporary liquidity shortfall by lending Australian dollars against the stressed bank's assets denominated in Australian dollars. The vast bulk of the Australian banking system's assets are denominated in Australian dollars,' said Mr Debelle.
'In net terms, the banks have been repaying their foreign liabilities,' Mr Debelle said at a speech in Sydney, adding that market participants are too focused on banks' liabilities in the wake of the credit crisis and not paying enough attention to assets.
A key component of Australian banks' exposure to a potential Greek crisis, said Mr Debelle, is that if a liquidity issue were to arise around the banks' funding, it is noteworthy that Australian banks' foreign currency-denominated funding is fully hedged into Australian dollars.
'An Australian dollar liquidity issue can be addressed by the Reserve Bank. The Reserve Bank can meet a temporary liquidity shortfall by lending Australian dollars against the stressed bank's assets denominated in Australian dollars. The vast bulk of the Australian banking system's assets are denominated in Australian dollars,' said Mr Debelle.
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