Bank offshore funding collapses into RBA’s arms

Via a smug RBA putting the cue in the rack. Christopher Kent:


In the early stages of the pandemic, there was extreme uncertainty about how much economic activity would decline and how long the economic disruption would last. It was also uncertain how much support would be provided by monetary and fiscal authorities. And so, as the virus spread around the world through early March, extreme uncertainty and the prospect of a sizeable decline in economic activity was reflected in financial markets globally. In particular, there was a sharp rise in the volatility of asset prices, a decline in the prices of risky assets, and before too long, dislocation in a number of key financial markets (Graph 1). Most notable were the problems affecting government bond markets, which are critical to the pricing and operation of financial markets more broadly.[1] Australia was no exception.

Graph 1
Graph 1: Financial Market Volatility

These conditions underpinned a general rush for liquidity, including by banks and other financial institutions. More generally, investors in a wide range of financial markets also sought to shore up their liquidity and reduce their exposures to riskier positions.

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