Australian financial regulators vow to keep a close eye on local banks

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

Australian bank stocks rose on Wednesday after Wall Street’s overnight rebound in a sign that a sweeping US government stimulus package following the collapse of the Silicon Valley bank has stabilized 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 underscored the strength of the local industry. The comments came after regulators met late last week to discuss SVB’s sudden collapse.

“APRA, in consultation with the CFR agencies, will continue to closely monitor the situation through its intensive monitoring of Australia’s banking system, which remains heavily capitalized and highly liquid,” the council said in a statement on Wednesday.

Regulators said they are also monitoring long-term domestic risks, particularly how mortgage customers are coping with soaring interest rates. They said a small segment of heavily indebted households faced “debt-servicing challenges” and acknowledged the surge in repayments awaiting many fixed-rate borrowers.

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

Global stock markets 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 as customers rushed to withdraw billions of dollars in deposits.

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