The September switch

September was a memorable month in offshore markets and banking with the conservatorship (and default) of US mortgage funders Fannie Mae and Freddie Mac, the rescue of American International Group, the failure and liquidation of Lehman Brothers, and the fast accelerating series of bank runs, near failures, and the beginning of the expensive bank bail outs in the United States and western Europe that have reshaped the order of international banking.

In a parochial Australian context those global forces accelerated the shift of savings out of equities and managed funds and back into the banking system. Banks, in aggregate, increased deposits from business and households by $17 billion over September, with growth for the month of in excess of three per cent.

To give this some context, all banks increased their deposits (from household and business) by about $12 billion over the six months to March 2008 and by $69 billion in the six months to September 2008.

Focussing on the one-month change in deposits by banks may give excess weight to variance in their liabilities arising from normal operations, a sensitive point with at least one bank named in the following articles. However, September 2008, and in particular the second half of the month, was a most unusual period.

By mid October (and two weeks after the period to which the APRA banking statistics relate) Australia's government announced the (still evolving) guarantee on bank deposits. That guarantee, according to the announced explanations, has its basis in the similar policy decisions in offshore markets. A secondary explanation may be the shifts in deposits within Australia's banking system, where the monthly APRA banking statistics are one means by which to follow those trends.