It has taken the failure and bailout of Bear Stearns and the way that rattled world financial markets to produce the most comprehensive statement so far from the Federal Government about how it sees Australia in the midst of the worst conditions in global markets for decades.
In a ministerial statement to the House of Representatives yesterday, Federal Treasurer, Wayne Swan said the deteriorating global outlook does present a significant risk to the Australian economy.
He said that businesses and households were already feeling the effects of higher interest rates which, in part, reflect global financial turmoil.
"The outlook for the global economy and uncertainty in global financial markets is beyond our control," but Mr Swan said the Government was vigilant and remained confident that Australia’s financial institutions and regulatory agencies were coping reasonably well with a global challenge of "considerable severity."
"The Australian Prudential Regulatory Authority is closely monitoring the impact of developments in our banking sector.
"It’s focus is on ensuring that all institutions have adequate plans in place if the market turbulence continues.
"Despite increased issuance in domestic and international bond markets in the early months of this year by major Australian banks, further instances of market turbulence cannot be ruled out.
"Problem loans are still very low by historical and international standards, however, and Australia’s corporate debt to equity ratio remains at historically low levels.
"The turmoil in global financial markets has not unduly restricted the total supply of finance to our economy, with strong growth in bank lending more than offsetting the reductions in corporate bond issuance, and in lending to households by mortgage originators," The Treasurer said.
In Sydney, Commonwealth Bank CEO, Ralph Norris forecast continued high interest rates here for the rest of the year.
He told a business lunch that compared to their global peers the major Australian banks were in a strong position.
"We’re well managed and well capitalised and are seen as being safe and secure," he said.
But he told the lunch the trouble in US credit markets was worse than he had previously thought.
The US economy is slowing as credit market tighten and could fall into recession, economists believe.
"I visited the US a couple of weeks ago and saw at close hand the depth of the problems and certainly those problems are much more entrenched than I thought."
"It’s clear this global liquidity crisis will continue for some time – in my view at least 12 months, possibly longer, until the full impact flows through the markets and we return to some form of equilibrium."
"The recent turbulence on world markets has re-emphasised the importance of traditional commercial banks," he said,
"There is no doubt in a period of uncertainty and volatility that we’ve benefited from a ‘flight to quality’ response from customers seeking security and certainty."
Mr Swan said that Treasury, the agencies within his portfolio and the Government have been following the global market developments with an eagle eye.
"We are in close and continuous contact with financial markets here and offshore.
"I have been in almost-daily discussion on this topic: with our central bank, with the regulatory authorities and the leadership of the financial community.
"While we are alert to the impacts on our economy, I would point out to the House that the circumstances of our financial institutions are different from those in the US.
"While the twelve consecutive rate rises since 2002 have undoubtedly taken a toll on household budgets, we are not experiencing the same levels of mortgage defaults that are now occurring in the US.
"While it is important that we recognise the severity, duration and possible consequences of the global financial turbulence, we should also recognise that Australia’s circumstances are more favourable than those elsewhere."
