12 April 2012

Australian banks are coming under more scrutiny from governments, regulators and consumer watchdogs than in the past thanks to the lasting effects of the 2008 financial crisis. Banks world wide are now required to hold more capital and to engage in less risky activity than before in an effort to lower the risk of future banking failures that cause widespread financial instability. While Australian banks are among the world’s safest, they will continue to be held in check by the government and its regulatory authorities – the RBA and APRA.

One consequence of this is that they will start to behave, from an investment point of view, more like infrastructure assets – that is to say, highly regulated assets that produce a stable and predictable income streams. This should see their shares prices fluctuate less than other (non-infrastructure) stocks and their dividends be more reliable. The exception to this might be for those banks that choose to expand offshore to a significant extent.

This will have important consequences for shareholders and bank depositors – see also this article by Don Stammer writing in The Australian.