Assessing the Impact of a Significant Global Financial Setback on Australian Investors

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Tony Brinker, Institutional Equity Research at Select Equities, has revealed the latest developments in Silicon Valley Bank’s operations and what they mean for Australian investors. 

It was worth noting that the bank, established in 1983 and one of the largest commercial banks in the United States, collapsed with alarming speed on March 10.

Banks facing ‘complicated’ business after global financial crisis

According to Mr Brinker, the global financial crisis changed how central bankers view financial risk, prompting new restrictions like Dodd-Frank and its European equivalents. 

“Certain banks like Credit Suisse probably were already in trouble, and hence the share price since then has been on the slide.” Mr Brinker said.

Now, even with limiting a bank’s balance sheet, not much will change without changing fundamental laws.

“What we are now seeing is somewhat of a complication. You can go and control the bank’s balance sheet in a certain way, but unless you change certain laws, which we may discuss, when central banks move interest rates significantly, banks will struggle,” he said.

Banks see positives from Trump banking reforms

President Trump’s passing of the 2018 legislation to raise the capitalisation limit of banks from $50bn to $250bn has been seen as a move to free up banks and open them up for business. The decision brought mixed reactions from Republican and Democratic congress members but ultimately received a 50/50 vote in favour. As a result of the legislation, only a dozen banks in the US now fall under the regulations. 

Meanwhile, Mr Brinkeer claimed that the Australian banking system is very healthy, with plenty of capital available after the Hayne Royal Commission. Despite this positive footing, short-term sentiment can still affect share prices if the housing market weakens.

While the banking crisis has negative implications for the equity market, it does not necessarily mean that all long-term investments will fail to generate returns. 

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