The past month has also witnessed the failure orbail-outof three mid-size US banks,which has left investors fretting over which institutions may be next. Last week,US banks borrowed a combined $US164 billion from two Federal Reserve backstop facilities,a sign of funding stress,escalating fears about how widespread and serious the liquidity issues are in its banking system.
“On the one hand,the authorities have put a backstop in place in the US,which should avert a worst-case scenario. By the same token,investors are still nervous that other banks might run into trouble,” AMP chief economist Shane Oliver said on the weekend as the Credit Suisse deal was brokered.
In Australia,regulators have acted to bolster confidence in the nation’s banks by emphasising the local lenders high liquidity and capital strength.
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Still,the effect on the Australian market from the turmoil in the banking sector could be higher wholesale funding costs for the nation’s largest banks,and a tightening in lending,which would be negative for economic growth,said AMP’s Oliver.
This has prompted some traders toslash their bets of further interest rate rises from the Reserve Bank.
Australian shares are set to open weaker with the futures market overnight pointing to a 1.4 per cent slide in the benchmark S&P/ASX200 index.