Australian banks could survive a European meltdown, even if credit markets dried up.
That's the claim of APRA chairman John Laker. Speaking to the Senate Standing Committee on Economics, Laker said Australia's banks could survive if offshore credit markets closed.
"At this stage, the strengthened liquidity positions, coupled with the capacity to issue covered bonds and the unused self-securitisations that can be used in repurchase transactions with the Reserve Bank of Australia, provide APRA with comfort that ADIs could survive a period of months without access to global term debt markets, provided domestic markets continue to operate relatively normally," Laker said.
Laker pointed to covered bonds, and said the instruments could provide banks with the ability to raise funds in a time of tight offshore markets.
"The major banks have also all undertaken covered bond issues and this has established a market for these instruments. All retain significant headroom between issues made and the maximum limit they are able to issue, giving them the capacity to issue more covered bonds if additional funding challenges arise," he said.
Laker said that in spite of the "dark clouds from Europe", Australian banks remained sound. But he conceded that banks still face challenges, and warned that the way they face these challenges will determine their strength in the future.
"credit growth remains subdued. In this environment, strategic ambitions will be crucial in determining how ADIs maintain their financial strength and profitability in a durable way, and these ambitions are a key topic in APRA’s regular discussion with boards and senior management," Laker said.
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