The increased supervision comes after start-ups pulled funds deposited with SVB, triggering its collapse, and after Credit Suisse suffered outflows from its customers concerned about its profitability as it attempted a complicated and lengthy restructuring process.
Barrenjoey analyst Jonathan Mott told clients in a note that the “situation remains stable” for Australian banks, but warned confidence could be quickly eroded, and bank margins would be pressured.
“Our channel checks indicate deposits are not being withdrawn from smaller institutions in any size, and capital and liquidity buffers are strong,” Mr Mott said.
“But this is a crisis of confidence and credit spreads and cost of capital will continue to rise. At a minimum, this will add to the margin pressure the banks are facing, while credit quality will continue to deteriorate.”
Already banks are understood to have become more cautious about where they allocate lending given the pressures on their margins, which will intensify in line with global market turmoil.
The fallout from $17 billion worth of Credit Suisse’s additional tier-one bonds being wiped by the Swiss regulator will put even more pressure on local banks, given they have to raise an extra $70 billion of total loss absorbing capital by 2026.
The major banks have privately stressed that the local crypto industry remains small and largely banked offshore because of existing concerns around anti-money laundering compliance.
An APRA spokesman declined to comment, and pointed to a recent statement which noted that the regulator had “increased supervision” of the banking sector.
“It’s already difficult for start-ups to access banking services in Australia. It’s hard to escape the suspicion that it’s not about to get a whole lot tougher due to a banking crisis that has absolutely nothing to do with us,” one start-up founder said.
“No one is arguing banks should be forced to extend services to an extravagantly risky client. But they should be required to make transparent, explicable decisions on a case-by-case basis. If you apply an arbitrarily high-risk weighting to an entire sector, where’s the incentive for banks to offer their services? All you’re going to achieve is the concentration of risk in an ever smaller pool of banking service providers to the start-up community.”
APRA does not mandate banks’ risk weightings, which are set by each bank individually. It is also not publishing any of the information it collects publicly and is using it solely to determine Australian banks’ risk profile.
One source said APRA was “not the difficult point” and banks had been increasingly de-banking start-ups recently against the advice of regulators including AUSTRAC, the Australian Competition and Consumer Commission and the Council for Financial Regulation.
Another source said start-ups were also starting to worry about their apps offered through third parties, given the risk that funds stored in digital wallets could be frozen if banking services were suddenly withdrawn.
The source pointed to those funds trapped in Unhedged, an algorithm-based investment platform that decided to shutter its investment services. Account holders have been unable to access their funds as they wait for auditors to wind up the company’s consumer arm.
“As a young business, Unhedged is not yet profitable, and raises capital to fund its operations. Due to funding constraints in the current market environment, we have decided to pivot our company to a more capital efficient business model,” the company said in a statement.
On Tuesday, Unhedged founder Peter Bakker said there was “no risk apart from timing” for customers waiting to access their funds.
Crypto players said that the increased scrutiny could lead banks to deem the sector more risky, meaning they would cite heavier risk weightings as an excuse not to service the sector. These start-ups fear this could make it harder to continue their banking relationships and operations like payroll.
Last October, the Council of Financial Regulators, ACCC and AUSTRAC responded to complaints from the crypto and fintech sectors about being “de-banked” because they sit outside of banks’ risk appetites.
Regulators said the banks should collect and share data about so-called de-banking activities, make their processes transparent and fair, advise government of their risk tolerance and consider investing to improve their capability to bank these sectors.
ANZ, Commonwealth Bank, National Australia Bank and Westpac all declined to comment on Tuesday.