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Likwidity Quarterly Insights Q222-"same same but different"

A quarterly review is often a good time to consider one's position compared to a few months ago, and for many, June 22 will be a fairly different scenario compared to Mar22, especially as regards business and markets. In Australia especially, many are talking about recent market events last seen 20 years ago, so clearly, this may be an opportune time to take stock. In previous reviews, we have tried to simply highlight some topics and allow you to consider or read through them




Interest Rate parity

A little bit of uni economics that often gets forgotten by commentators, especially the general media who have figured out that scare and hyping stories are profitable and therefore will make headlines without proper analysis and one of the missing themes or analysis is around the theory of Interest Rate Parity. It is a key theory and driver in interest rate decisions. Too often commentators only focus on the in-country variables to determine interest rates but in reality interest rates also operate in tandem with global markets often through the Interest Rate Parity model. As an example, if one country's interest rate is too high relative to another, then the market will adjust the exchange rate to adjust for arbitrage opportunities . To put it simply, if the US Fed goes helter-skelter on rates, Australia will have to accommodate that either with similar interest rate moves or the market will adjust exchange rates. No country operates in a vacuum.


Market environment

To again pick up the lack of depth in the media, the most recent theme is about house prices dropping, but in reality, few are offering a fair benchmark that would show that prior to the recent Quantitative Easing, housing prices are probably higher than the pre-pandemic level. The point here is that in Australia, the cash rate has hovered between 1.5% and 3.5% for about 70% of the time in the last 10 years. The graph on our blog article shows this very clearly. So what we are seeing with recent interest rate increases is simply a return to normal. The pandemic era stimulus was an abnormal event. That's it.


What are other corporates doing about bank concentration ?

We have previously raised this issue and recent and ongoing consolidation in the banking market highlights this again. How do corporates manage concentration risk with many organisations being single-banked? Based on our interaction, many commercial organizations only have a single banking partner. Reasons often cited include having long-standing relationships, or that the process of setting up new bank accounts is too hard. Our ongoing poll shows that for most organizations, 3 banks are the most popular with an intention to expand to 5. Take our poll to see how you compare. (https://docs.google.com/forms/d/1WxKp4IQIcl423wWhZnUC9W_eyxDCLDb3EirJzQuU8vE/edit)

How Deposit platforms can change the world. Don't get left behind !

There is a view that banking is concentrated with a handful of banks accounting for around 80% of assets/liabilities. This has led to numerous calls for more regulation and competition oversight, and in most cases these calls are worthy of attention. History has shown that dominant players tend to abuse their positions and exert predatory pricing behaviors and the public and businesses pay the price. This is a really good example where Deposit Platforms can facilitate a fairer and level playing field. As Deposit Platforms grow in popularity, the volumes and centralisation of these platforms can enable a fairer and level playing playing field where smaller banks can compete on the same basis as the larger banks. A natural way of providing greater competition without onerous regulations. So bear that in mind as your enterprise adopts digitisation of short-term funds. Don't get left behind !


We hope we have provided some food for thought. Until the next quarterly, or chat with us about how we can help {{organization_name | default: ''}} with optimising your idle short-term cash.

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