Australian banks reportedly asked to relay crypto transactions

The news comes in the context of recent collapses in the banking sector such as Silicon Valley Bank (SVB) and Credit Suisse. SVB collapsed in the US after failing to raise USD 2.2 billion to plug a loss from the sale of assets, mainly US government bonds, that were affected by higher interest rates. These developments prompted a run on the bank in the US and sparked investor fears about the general state of the banking sector. Furthermore, on 19 March, UBS Group agreed to acquire its competitor Credit Suisse for USD 3.2 billion after the latter collapsed over the weekend. 

In Australia, these new measures are reportedly part of the APRA’s increased supervision of the banking sector. To be specific, according to cointelegraph.com, APRA has started requesting banks to declare their exposures to startups and crypto-related companies. They also reportedly ordered banks to provide daily updates to the APRA in a bid to obtain more information and insight into banking exposures into crypto as well as associated risks.

US bank fragility in 2023

In March 2023, a Social Science Research Network study published on ssrn.com analysed US banks’ asset exposure to a recent rise in the interest rates with implications for financial stability. According to the report, the US banking system’s market value of assets is USD 2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks while the bottom 5th percentile experienced a decline of 20%. 

When looking at the recently failed Silicon Valley Bank, the paper reveals that 10% of banks have larger unrecognized losses than those at SVB. According to ssrn.com the bank failed due to a combination of losses, uninsured leverage, and an extensive loan portfolio. Comparing SVB’s situation with other banks revealed that nearly 190 banks operating in the United States are potentially at risk of collapse. 

The paper concludes that recent declines in bank asset values very significantly increased the fragility of the US banking system to uninsured depositor runs.