Daily Commentary BY THE CURVE TEAM –

Capital Reforms for Mutual Banks

24th October 2018

The Morrison Government has proposed capital reforms for large credit unions and mutual banks to accelerate growth and competition.

The reforms would allow customer-owned entities to raise Tier 1 capital through the issue of special capital instruments. The draft legislation released this week is intended to be the first phase of a reform program aimed at helping mutual ADIs compete against the major banks.

Global equity markets continue to post substantial losses; however the Dow Jones Industrial Average recovered from being down 450 points mid session to only down 125 at the close. US growth and EPS are forecast to be heading higher but equity valuations are heading in the opposite direction. The path of FED policy is under some pressure for review, but I feel we are going to see the dot plots maintained at an aggressive trajectory to return to a neutral rate setting.

Bond yields rallied overnight with the uncertainty but are largely range bound at the higher end of the spectrum.

Peter Sheahan

Director - Institutional Markets