The Reserve Bank of Australia has published its latest Financial Stability Review which covers the global financial environment (including recent international bank failures – causes, regulatory responses and implications), the Australian Financial System, household and business finances in Australia and domestic regulatory developments.

With respect to the 3 US bank failures of Silicon Valley Bank, Signature and Silvergate, it says they were triggered by similar vulnerabilities: concentrated deposits, large valuation losses on securities holdings and poor risk management and less stringent regulation and supervision.

The Reserve Bank says the Australian financial system is strong, pointing to several features that leave it well placed to support economic activity through the current challenging economic and financial environment: Australia has a resilient, well-capitalised and profitable banking system that has strong liquidity coverage.

The Reserve Bank has noted medium-term threats generated from outside of the financial system that warrant ongoing attention from financial institutions and authorities in Australia and around the world.

These include the increasing intensity of cyber-attacks on financial institutions, the potential for an escalation in geopolitical tensions that results in disruptions to trade and international capital flows, and potential climate-related disruptions to parts of the financial system (including but not limited to energy markets).

With respect to household finances, it says most households and businesses are well placed to manage the impact of higher interest rates and inflation, supported by continued strength in the labour market and sizeable savings buffers. However, the resilience of households and businesses is unevenly spread; some are already experiencing financial stress from higher interest rates and inflation, and the squeeze on household budgets is likely to continue for some time.

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