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Tuesday, March 28, 2023

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

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


Second, and rather more importantly, Australian banks are different. Most of the world’s banking systems sit somewhere on the spectrum ranging from “safe” to “competitive”. Competitive banking systems have many more banks (there are more than 4000 in the US). That means they have to give better deals to their customers, but it also means they’re more likely to fall over if a few things go wrong at the same time.

Safe banking systems have far fewer banks (although there are 97 banks in Australia, the big four effectively make up about 90 per cent of the mortgage and deposit markets used by everyday Australians). That huge market dominance means they can treat their customers, ahem, badly.

And that’s what the banks in Australia do. As central banks like our Reserve Bank have raised interest rates, Australian banks have passed that fast and fully to those who borrow from them, but slowly and partially to those who deposit money with them.

Or, to put that differently, Australian banks aren’t likely to fall over because they’ve been given the quiet nod from Canberra that lets them earn a fortune without the tiresome need to compete for that money.


To be clear, there are big benefits from that Faustian bargain. And you’re seeing the biggest right now. While citizens of some nations need to keep an anxious eye on the finances of their banks, here in Australia you can sleep easily tonight – our big banks are stupendously safe, and our little banks have very strong backing from our authorities and government.

Then again, that hasn’t stopped our share market from dropping back to where it was when 2023 began, and US share markets from dropping even further still. Given just how much of a stake ordinary Australians have in markets thanks to superannuation, my man-in-the-Woolies-aisle wanted to ask about that too.

First up, I had to admit that you shouldn’t rely on the opinions of economists as to where shares may head next. Even when I sacrifice a goat and carefully scatter its entrails, I have difficulties in forecasting financial markets.

But I do know that share markets and economies are two very different beasties. Provided markets don’t massively fall over – and I very much doubt they will – then they won’t really drive much of what happens to the wider Australian economy, let alone what happens to prices, wages and jobs here.

So, dear supermarket shoppers, there are plenty of things to worry about. But, here in Australia, I don’t think you need to worry about our banks – they’re resoundingly robust. And pretty much regardless of what happens to share markets, console yourself that those markets aren’t nearly as important as they think they are.

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