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Bank collapse fears: Aussie banks ‘strong’, says RBA

Credit Suisse was taken over by rival UBS overnight in a rescue deal. So, what on earth is going on?

Bank collapse fears: A composite image of the RBA, CBA, ANZ, NAB and Westpac logos.
Fears of a worldwide banking sector collapse have been brushed off by the RBA. (Source: Getty)

The Reserve Bank of Australia (RBA) has backed the strength of Aussie banks after Credit Suisse was taken over by rival UBS overnight.

Here is a simple explanation of what is going on and whether Aussie banks are likely to be next on the chopping block.

Credit Suisse takeover by UBS

Credit Suisse was one of the few world banks considered “systemically important” - a true ‘too big to fail’ situation.

UBS purchased Credit Suisse at a heavily discounted price of around $4.5 billion (CHF$3 billion). While that is a lot of money, it is nowhere near what one might have imagined such a major institution would sell for, even just a month ago.

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"This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," UBS chair Colm Kelleher said in a statement.

"It's a historic day, and a day we hoped would not come."

Was this tied to the US bank collapses?

Despite the coincidence that this happened a week after two banks in the US collapsed, they are not necessarily connected to each other.

Credit Suisse was already dealing with “significant legacy issues”, Credit Suisse chairman Axel Lehmanns said.

However, the two US bank collapses certainly didn't help the situation in Switzerland and added to investors' concerns.

After Silicon Valley Bank (SVB) and Signature bank collapsed in the US, Credit Suisse’s share price plummeted 25 per cent, adding to the banking turmoil.

Could this happen in Australia?

It’s not likely. RBA assistant governor Christopher Kent said the central bank wasn’t concerned.

“Volatility in Australian financial markets has picked up but markets are still functioning and, most importantly, Australian banks are unquestionably strong – the banks’ capital and liquidity positions are well above APRA’s regulatory requirements,” Kent said in a speech to the KangaNews DCM Summit today.

“Even if markets remain strained for a time, Australian banks’ issuance will continue to benefit from the strength of their balance sheets.”

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