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Wednesday, March 22, 2023

Markets bet US bank collapse could slow RBA interest rate rises

Emmett said ANZ still believed there would be another two rate rises from the RBA. “Our view at this stage is that the contagion will be quite limited and that it’s unlikely to impact the Fed or the RBA,” Emmett said.


Major bank shares helped to drag the Australian sharemarket lower on Monday, with the ASX 200 index declining 0.5 per cent to 7108.8. Some ASX-listed technology companies including Nitro Software, hotel software platform Siteminder, and buy now, pay later business Sezzle said they held deposits with SVB.

David Kirk, co-founder of tech-focused investment fund Bailador, which has investments in Siteminder, said he did not think there would be “systemic issues” caused by the collapse and interest rates of about 4 to 5 per cent from a bank were “not high”.

“My view is everybody had just got to learn to operate and manage their business for long-term 4 to 5 per cent cost of money,” Kirk said.

Australia’s banking peak body, investors and the local regulator all highlighted stark differences between SVB and Australian banks.


The Australian Prudential Regulation Authority (APRA) said: “While the Australian banking industry has limited connections with the US-based Silicon Valley Bank, APRA is intensifying supervision of the local banking industry and is seeking more information from them on any potential impacts.”

Principal at fund manager Alphinity, Andrew Martin pointed to SVB’s concentrated customer base in the tech sector, and the fact that an unusually large share of its assets were bonds, rather than bank loans. As squeezed tech businesses started withdrawing their deposits, SVB was forced to sell a $US21 billion bond portfolio at a $US1.8 billion loss last week.

“It’s incredibly hard to see – other than if it causes lower confidence in the system and people start running on other banks – how it’s a systemic issue on its own,” Martin said.

In a further move by regulators to stop the collapse from escalating, the Bank of England on Monday night said global giant HSBC was buying the UK arm of Silicon Valley Bank for £1.

The Bank of England said in a statement the sale would stabilise the SVB business in the UK, minimising the disruption to the technology sector and supporting confidence in the financial system.

HSBC said the UK arm of SVB had loans of about £5.5 billion ($9.9 billion) and deposits of about £6.7 billion, and the transaction would be completed immediately. The Australian Banking Association on Sunday night also highlighted the differences between SVB and Australia’s lenders, noting the US bank’s high exposure to technology companies.

“Australia’s banks in contrast are strong and subject to a different set of regulatory frameworks. ABA members are well diversified and therefore well positioned in the event that one sector experiences challenging financial circumstances,” the ABA said.

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