[Events] Is the Australian bank likely to collapse as SVB did ？
The collapse of the Silicon Valley Bank in the US has echoes of the 2008 Global Financial Crisis and is likely to affect Australia, financial experts say.
What has happened to Silicon Valley Bank？
SVB's woes stemmed from its tech customers ploughing money into the bank's deposit accounts, which tripled from $US62billion in 2019 to $US191billion by the end of 2021 as pandemic lockdowns buoyed technology companies.
Silicon Valley Bank invested this money in longer-dated US government bonds, with maturity dates 15 years or more into the future, during an era when economists were focused on deflation, amid concerns about weak economic growth in coming years.
The non-traditional bank, which didn't focus on home lending, saw the value of its bond assets plummet, however, as an inflation spike saw the US Federal Reserve's key interest rate - known as the federal funds rate - surge from zero to 0.25 per cent in March 2022 to 4.5 to 4.75 per cent now, via eight increases.
Is the Australian bank likely to collapse as SVB did ？
Digital Finance Analytics principal Martin North, who has worked in banking in the UK and Australia, said the effects of the SVB collapse were likely to be felt in Australia.
'We are at the very early stages of this rather than actually at the end of a mini crisis.'We are joined at the hip with the U.S. because a lot of our funding comes from international markets, particularly the U.S. and of course, our exchange rate is also very strongly linked to what happens in the the U.S.'
Then there are the Australian companies that had borrowed from SVB and opened accounts with them as a condition of obtaining venture capital. For example, Australian graphic design group Canva, Sydney-based online hotel booking group SiteMinder, employment site Freelancer and software company Xero and so on.
Some experts says SVB collapse can’t happen in Australian
Australian banks do not have significant amounts of their deposits sitting in Treasury securities, mortgage-backed securities and other liquid investments. Instead of sitting on deposits, Australian banks actually do what banks are supposed to do – lend money at a profit. They are intermediating between depositors and lenders.Australian banks have strong incentives to make sure they hedge the interest rate risk in their bank books.
What are your thoughts on the collapse of SVB?
💡Share Your Insights
- Is the Australian bank likely to collapse as SVB did ？
- What is your opinion of Australian banks? Are you bullish or bearish?
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⏰Activity Duration
16 March 2023-23 March 2023 $Tiger Brokers(TIGR)$, $COMMONWEALTH BANK OF AUSTRAL(CBA.AU)$, $NATIONAL AUSTRALIA BANK LIMITED(NAB.AU)$, $AUST AND NZ BANKING GROUP(ANZ.AU)$, $WESTPAC BANKING(WBCPI.AU)$
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I don't think all other bank will be the same mistake. I am confident in Australia Bank
$COMMONWEALTH BANK OF AUSTRAL(CBA.AU)$ $AUST AND NZ BANKING GROUP(ANZ.AU)$
🌟🌟🌟While there is currently fear and contagion from the fallout of SVB, I have faith that the Australian government and RBA will do everything in their power to protect the integrity of the Australian banking system. The Big 4 Banks are rock solid with their balance sheet too.
So my answer is a definite no that the Australian banks will collapse. In the short term, the share prices will be volatile but this too will pass. With a long term horizon I firmly believe that investing in the Australian banks especially the Big 4 is a good call as they have wide moats and pay excellent dividends too.
@Tiger_AU
Bearish on small banks.
Bullish on big banks. [Cool]
$COMMONWEALTH BANK OF AUSTRAL(CBA.AU)$
$NATIONAL AUSTRALIA BANK LIMITED(NAB.AU)$
$WESTPAC BANKING CORPORATION(WBC.AU)$
$AUST AND NZ BANKING GROUP(ANZ.AU)$
Inflation in Australia: 7.4% (Jan 2023 CPI)
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the fact that most of the Australian Banks are composed from loan wouldn't make it any better. loan is a long term contract which gives a long term income. however, the needs of a quick fresh fund from the withdrawal of the third party fund will make it sold in cheaper price owing to the fact that a loan, even a high quality one, may not be able to be sold in a short time in a profitable price wanted.
thus, the most important thing to do is keeping the public trust in the economy and specially banking system. in addition, they could arrange an emergency backup liquidity loan
The regional 🏦 may not be as fortunate. The saving grace would then be the fear in contagious effect among the sector. Rescue and bank guarantee with taxpayer's money would follow. I am neutral on Australian 🏦 in this environment.