Are we heading for the next global financial crisis?

While it wasn’t pretty, it was quite effective.

Loading

Second, and more importantly, Australian banks are different. Most of the world’s banking systems fall somewhere on the spectrum from safe to competitive. Competitive banking systems have many more banks (there are over 4000 in the US). That means they have to offer their customers better deals, 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 account for about 90 per cent of the mortgage and deposit markets used by Australians on a day-to-day basis). This enormous market dominance means they can treat their customers badly.

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

Or to put it another way, Australian banks are unlikely to keel over having received the nod from Canberra that allows them to make a fortune without the hassle of fighting for that money.

Loading

To be clear, there are great benefits from this Faustian trade. And you’re seeing the biggest thing right now. While the citizens of some nations must keep an anxious eye on the finances of their banks, here in Australia you can rest easy tonight – our big banks are amazingly safe and our small banks have very strong support from our agencies and government.

On the other hand, this hasn’t stopped our stock market from falling back to where it was at the start of 2023, and US stock markets have fallen even further. Given how much of a market share ordinary Aussies have thanks to retirement, my husband in the Woolies aisle wanted to ask about that too.

First of all, I had to admit that one shouldn’t rely on economists’ opinions on the future of equities. Even if I sacrifice a goat and carefully scatter its entrails, I have trouble predicting financial markets.

But I know that stock markets and economies are two very different beasts. Assuming markets don’t undergo a massive upheaval – and I very much doubt they will – then they’re not really going to affect much of what’s happening with the broader Australian economy, let alone what’s going on here with prices, wages and jobs.

So, dear supermarket shopper, there are many things to worry about. But here in Australia, I don’t think you have to worry about our banks – they are extremely resilient. And pretty much regardless of what happens to stock markets, take comfort in the fact that those markets aren’t nearly as important as you think they are.

The Opinion newsletter is a weekly collection of views that challenge, support and inform your own. Login here.