Regulators vow to watch Aussie banks closely amid hopes worst is over

The country’s top financial regulators have sought to highlight the strength of Australia’s banks and vowed to keep a close eye on the sector, as investors took comfort from the US government’s emergency measures to stop further bank runs.

Australian bank shares edged higher on Wednesday after a rebound on Wall Street overnight, in a sign that a sweeping US government support package following the collapse of Silicon Valley Bank has stabilised investor confidence.

The Council of Financial Regulators, which includes the Reserve Bank, the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission and the federal Treasury, also underlined the local industry’s strength. The comments came after the regulators met to discuss SVB’s sudden failure at the end of last week.

“APRA, in consultation with CFR agencies, will continue to closely monitor the situation through its intensive supervision of the Australian banking system, which remains strongly capitalised and highly liquid,” the Council said in a statement on Wednesday.

Regulators said they were also watching long-running domestic risks, in particular how mortgage customers were coping with the sharp rise in interest rates. They said a small share of highly indebted households were experiencing “debt-servicing challenges”, and acknowledged the jump in repayments awaiting many fixed-rate borrowers.

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“In the period ahead, a large share of fixed-rate borrowers will experience a significant increase to their loan repayments as their loans reset at higher interest rates. Many of these households have accumulated material savings buffers ahead of this transition, but some are better prepared than others to withstand higher borrowing costs,” it said.

Global sharemarkets were spooked this week by the collapse of Silicon Valley Bank, which failed after the lender was forced to liquidate parts of its bond portfolio at a loss because customers were rushing to withdraw billions in deposits.

The US government responded by guaranteeing all deposits held by the bank, and those of Signature Bank, which also collapsed.