With the benefit of hindsight, the response to the failure of SVB and, especially, Credit Suisse might be viewed as an overreaction. Both entities had significant idiosyncratic challenges and the circumstances of SVB’s failure in particular were almost a throwback to the bad old days of woeful regulatory oversight in the banking sector.

At the same time, however, the proximate cause of both banks’ decline was a run on deposits. Many observers interpreted the Credit Suisse situation as the demise of a troubled but fundamentally sound – or at least recoverable – business. Fear that confidence could start to crumble across the global banking system was understandable in this context.

The initial reaction to the SVB collapse was a generalised retreat from banks and, in particular, smaller and regional institutions. The impact was at times catastrophic in the US, with regional bank share prices hammered and at various other institutions – First Republic Bank and Signature Bank among the larger – also failing after a run on deposits.

The impact was smaller in Australia but still significant. For instance, Bendigo and Adelaide Bank (BEN)’s share price fell by more than 8 per cent from shortly before the SVB failure to its low point on 14 March. Commonwealth Bank of Australia (CBA) shares fell by around 5 per cent in the same period. Both banks recovered more than half their lost value in a few days and almost in full by the end of the year.

In the credit market, major-bank senior spreads widened by around 10 basis points out to five years in minimal trading volume on 13-14 March. However, even during the peak of uncertainty there were signs that the market was not anticipating a full-blown liquidity crunch. BBSW, for instance, remained very stable with fluctuations measured in fractions of a basis point.

Australia’s second-tier banks do not fall under the highest scrutiny, domestic systemically important bank, regulatory regime. However, they insist the oversight of their liquid assets and funding ratios is a solid barrier against the type of fate that befell SVB and its peers. Their own balance-sheet conservatism only adds to their safety.

“Investors wanted to reaffirm their understanding of how our market works, particularly from a regulatory regime perspective, which they did by asking questions about liquidity and capital frameworks. Accounting policies were a particular focus – they wanted to know how we valued our assets,” revealed Jason Bounassif, group treasurer and chief financial officer at AMP in Sydney. “While there were a lot of questions, there was also a sense that most investors already knew the answers – it was about reaffirming their understanding.”

Luke Davidson, treasurer at BEN in Melbourne, told KangaNews: “Differences between US regional banks and the situation in Australia are well understood by investors so we haven’t experienced much of an increase in inbound questions. There have been a few questions aimed at clarifying the framework for interest rate risk management and how fair-value movements in liquidity portfolios are recognised, but these conversations were pretty straightforward given the strong framework in Australia.”

Issuance resumed in rapid order. Further troubles for European banks – centred on Deutsche Bank – in the European session on 24 March left the Australian market in limbo on 27 March. But Scott Gifford, Melbourne-based head of group funding at ANZ, told KangaNews that euro covered bond issuance and more stable performance by US regional banks on the same day laid the table for Australian supply.

ANZ Banking Group priced A$4.25 billion (US$2.9 billion) of three- and five-year bonds on 28 March. The three-year margin on this deal was 8 basis points wide or a Westpac Banking Corporation print on 10 February and 7 basis points inside the three-year margin Commonwealth Bank of Australia offered on 9 January.

“The deal represents a very strong show of support – a vote of confidence – for the Australian dollar market and the strength of the Australian banking system, from domestic and regional investors,” Gifford says. “We knew going into the deal that Australian major banks provide a flight-to-quality option in the local market in volatile times and that investor cash levels remained high. But we are still pleased, at the end of the process, with the size, diversity and quality of the book.”

Even the Australian additional tier-one (AT1) market held firm, despite the full write-off of this part of Credit Suisse’s capital stack in its takeover by UBS. Secondary activity in Australian paper was minimal in the wake of this development and local banks were able to refinance their AT1 throughout the year.

“The price hasn’t moved because holders aren’t selling,” Andrew Gordon, head of debt capital markets at Ord Minnett in Sydney, tells KangaNews. “We would have anticipated that Credit Suisse would have made investors worry about the smaller banks. If they were going to sell anything, it would have been AT1 instruments from these institutions. But none of the noteholders have; we have more buyers than sellers in this market by a factor of three or four.”