Aussie bank boss makes grim prediction

The aftershocks of the sudden fall of Silicon Valley Bank earlier this month rocked global markets, triggering the sale of Swiss banking giant Credit Suisse to rival UBS and, most recently, prompting shares of another European bank to take a nosedive.

ANZ chief executive Shayne Elliott says the turbulence is “clearly not over” and may take months to play out in local and international markets.
“I don’t think you can sit here and say, ‘Well, that’s all done, Silicon Valley Bank and Credit ­Suisse and, you know, life will go back to normal’,” he said in comments published on ANZ’s website.

“These things tend to roll through over a long period of time … history says it’ll take many, many months, if not a year, for these things to roll through the economy.”

Mr Elliott said although the turbulence may be a “crisis for some”, it is “too early to call it … a financial crisis”.

“Does it have the potential to be one? Yes, it does have the potential to be one,” he wrote.

Unlike the 2007-08 Global Financial Crisis, which was a “crisis around the quality of assets and the loans that banks make”, Mr Elliott said the pending crisis had more to do with a “global war on inflation” and rising interest rates to combat that.

“When you really get the microscope out, the causes and what’s going on here are really, really different than the GFC,” he wrote, adding that “history doesn’t repeat, it rhymes”.

Another difference in the current situation to the other 40 crises over the last 250 years, Mr Elliott noted, was that regulators acted much quicker to support banks – a lesson from the GFC, he said.

He also put confidence in the Australian banking sector, which has more stringent controls and processes than “elsewhere in the world”.

Meanwhile, global markets are waiting for further intervention from US authorities and monitoring the US Federal Reserve’s moves on interest rates – which have also tightened liquidity.

Tighter liquidity, the big bank boss warned, will mean Australian households and businesses – big and small – will pay more to access bank credit and, potentially, that funding will get “rationed and not everybody will be able to have some”.

“Historically it’s really those people who are over-geared, who have too much debt, or have a business model where when the cost of goods go up, the cost of money goes up, they’re unable to pass it on to their own customers,” Mr Elliott said.

“And those are the people that are most at risk in this environment.”

Wall Street will be watching this week to see if the US Federal Deposit Insurance Corporation guarantees deposits for all banks, rather than just those considered “systematically important”.

Mr Elliott said much like the rest of the world and global industries after the Covid-19 pandemic, banking will not go back to the way it was before this crisis, adding that he would not be surprised if regulators were already drafting the “new world”.

“Just like Covid, the world never went back to the way it was pre-Covid. Even with these things that are happening, and who knows where it’ll go, the future will never go back to the way it was, it will always be slightly different,” he said.

“I can almost guarantee regulators around the world are thinking of new things they need to put in place to protect depositors and the economy from change going forward.”