Banks should report exposure to crypto-related businesses: Australia

• The Australian regulator has reportedly asked local banks to report on cryptocurrency transactions in the aftermath of SVB’s collapse.
• The announcement comes just a few days after the Australian Banking Association opened a cost-of-living inquiry.

The Australian Prudential Regulation Authority (APRA) has reportedly asked local banks to report on cryptocurrency transactions. This ruling occurred in the aftermath of Silicon Valley Bank’s (SVB) collapse.

According to a 21 March Australian Financial Review report, APRA has requested banks to declare their exposure to startups and crypto-related companies.

The APRA has ordered banks to improve their reporting on crypto assets and provide daily updates to the APRA. The regulator hopes to gather more information and insight into banking exposure to cryptocurrency, as well as associated risks.

Treasurer Jim Chalmers, however, stated last week that Australia could easily withstand market volatility. This was because the country’s banks were well capitalized, well regulated, and had strong liquidity.

U.S. Financial Crisis to swallow the global banking system?

These actions appear to be part of APRA’s increased banking sector supervision in the aftermath of recent massive collapses in the global banking system. At first, the crypto industry-friendly Silicon Valley Bank collapsed. Then, the Signature Bank and the Silvergate Capital Corp foundered soon after. Later, Credit Suisse Group also crashed and its competitor, UBS Group AG, was planning to buy the ailing banking group for $3.2 billion.

In a note to clients, Barrenjoey analyst Jonathan Mott reportedly stated that the situation for Australian banks “remains stable,” but warned that confidence could be quickly disrupted, putting pressure on bank margins.

Mott said:

“Our channel checks indicate deposits are not being withdrawn from smaller institutions in any size, and capital and liquidity buffers are strong.”

He did, however, add that this is a confidence crisis. Mott continued, saying that credit spreads and the capital cost will continue to rise. At the very least, this will exacerbate the margin pressures that banks are already experiencing, while credit quality will continue to deteriorate.

The announcement comes just a few days after the Australian Banking Association opened a cost-of-living inquiry to investigate the impact of the COVID-19 pandemic and geopolitical tensions on Australians.