International Linkages of the Australian Banking System – Implications for Financial Stability

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Australian-owned banks’ have predominantly linked with New Zealand, UK and US, with New Zealand representing the largest share given the similarities of its banking system with Australia.  Australia has also been building towards Asia to take advantage of the growing trade and investment flows between the two countries.  International banking creates opportunities by allowing local banks’ to increase and diversify earnings; at a larger scale international banking promotes global economic growth by providing a channel to facilitate trade and allocate savings to investment opportunities; and the existence of foreign banks operating in other jurisdictions can help deepen local financial markets and raise competition and efficiency in the local banking system.  However, as Australian banks’ expand internationally, with varying strategies and success, the Australian banking system is taking on more complexity, and as such regulators are constantly monitoring risks to financial stability.

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This paper was presented in July 2015 at the 20th Melbourne Money and Finance Conference (MMFC), which explored the theme The Australian Financial Sector and Global Integration.

For more papers presented in the conference, please click here.