Yesterday, Houses and Holes penned a cracking post questioning the Australian banks’ gigantic external liabilities that are exposing the financial system to the risk of a sudden liquidity shock, and have placed Australian taxpayers on the hook for potential bank bailouts.
For added context, please find below two charts summarising the banks’ offshore funding exposures.
The first, which comes from last week’s Australian Bureau of Statistics (ABS) Financial Accounts, shows that the banks’ gross external liabilities hit a record high of nearly $700 billion, or 26% of total liabilities, in the September quarter:
Amazingly, the banks’ gross external liabilities rose by nearly $50 billion, or 8%, in the September quarter alone.
Meanwhile, the below chart, which comes from the ABS’ latest Balance of Payments release, shows that the increase in the banks’ gross external liabilities have come primarily from short-term (less than 12 months) funding sources, namely short-term foreign deposits and loans:
Note the sudden spike in short term funding and paralysis in long term. This is precisely what transpired in 2008 when the long term markets for unsecured debt froze and drove the banks to short term markets. When Lehman hit and froze those as well, the banks were left high and dry.
