Even strangers are suddenly asking me if they should stuff their money under the mattress

2 weeks ago 24

No economist ever dispersed a lawsuit of COVID. How bash I cognize that? Because cipher ever stands adjacent capable to respire the aforesaid aerial that we do. We’re modern-day lepers.

So, I should person guessed thing was up erstwhile a alien approached maine to chat recently. They wanted to cognize whether they should instrumentality their wealth retired of banks and shares and worldly it nether their mattress. That’s a beauteous large question for the frozen nutrient aisle astatine Woolies. But you’ll beryllium gladsome to cognize I told the bully antheral I wasn’t excessively disquieted that different fiscal situation was brewing.

I told the bully antheral I wasn’t excessively worried.

He asked due to the fact that a US slope you’ve ne'er heard of failed successful California a week oregon truthful ago, and past the resultant fears took down different slope successful the US too. Still, they were minnows erstwhile measured against the immense US banking system, truthful it wasn’t until rumours began to swirl astir a whale – Credit Suisse – that markets began to turn much tense and fearfulness headlines began to creep onto beforehand pages. After all, if a Swiss slope isn’t seen arsenic harmless ...

So, is determination different GFC brewing, leaving Australian banks astatine risk?

The satellite has ne'er jacked up the outgo of borrowing this fast, truthful chances are thing would spell wrong. As Warren Buffett beautifully enactment it, you conscionable ne'er cognize who’s been swimming bare until the tide goes out.

The fast-receding tide has revealed that immense increases successful involvement rates person been a peculiar occupation for immoderate banks. And erstwhile banks commencement to fail, the punters get nervous. Worse still, that tin beryllium a self-fulfilling prophecy. In these days of societal media and the quality to usage your telephone to retreat wealth from a slope that’s fallen nether immoderate benignant of cloud, slope runs tin determination astatine lightning speed.

Credit Suisse shares person plunged to a grounds low.

So, could Australian banks beryllium the adjacent domino to fall?

That’s truly unlikely. First, the US jumped accelerated to bail retired slope depositors there, and deliberately overdid it – the rules said it lone had to wage retired a max of $US250,000 to immoderate depositor. Instead, it said it’d wage backmost each dollar to depositors. Or, successful different words, the US held up a fistful of dollars and screamed: “Don’t panic!”

Although that wasn’t pretty, it was beauteous effective.

Second, and alternatively much importantly, Australian banks are different. Most of the world’s banking systems beryllium determination connected the spectrum ranging from “safe” to “competitive”. Competitive banking systems person galore much banks (there are much than 4000 successful the US). That means they person to springiness amended deals to their customers, but it besides means they’re much apt to autumn implicit if a fewer things spell incorrect astatine the aforesaid time.

Safe banking systems person acold less banks (although determination are 97 banks successful Australia, the large 4 efficaciously marque up astir 90 per cent of the owe and deposit markets utilized by mundane Australians). That immense marketplace dominance means they tin dainty their customers, ahem, badly.

And that’s what the banks successful Australia do. As cardinal banks similar our Reserve Bank person raised involvement rates, Australian banks person passed that accelerated and afloat to those who get from them, but slowly and partially to those who deposit wealth with them.

Or, to enactment that differently, Australian banks aren’t apt to autumn implicit due to the fact that they’ve been fixed the quiescent motion from Canberra that lets them gain a luck without the tiresome request to vie for that money.

To beryllium clear, determination are large benefits from that Faustian bargain. And you’re seeing the biggest close now. While citizens of immoderate nations request to support an anxious oculus connected the finances of their banks, present successful Australia you tin slumber easy contiguous – our large banks are stupendously safe, and our small banks person precise beardown backing from our authorities and government.

Then again, that hasn’t stopped our stock marketplace from dropping backmost to wherever it was erstwhile 2023 began, and US stock markets from dropping adjacent further still. Given conscionable however overmuch of a involvement mean Australians person successful markets acknowledgment to superannuation, my man-in-the-Woolies-aisle wanted to inquire astir that too.

First up, I had to admit that you shouldn’t trust connected the opinions of economists arsenic to wherever shares whitethorn caput next. Even erstwhile I sacrifice a goat and cautiously scatter its entrails, I person difficulties successful forecasting fiscal markets.

But I bash cognize that stock markets and economies are 2 precise antithetic beasties. Provided markets don’t massively autumn implicit – and I precise overmuch uncertainty they volition – past they won’t truly thrust overmuch of what happens to the wider Australian economy, fto unsocial what happens to prices, wages and jobs here.

So, beloved supermarket shoppers, determination are plentifulness of things to interest about. But, present successful Australia, I don’t deliberation you request to interest astir our banks – they’re resoundingly robust. And beauteous overmuch careless of what happens to stock markets, console yourself that those markets aren’t astir arsenic important arsenic they deliberation they are.

The Opinion newsletter is simply a play wrapper of views that volition challenge, champion and pass your own. Sign up here.