Commonwealth Bank bags $35b in rush for safety

The latest snapshot by the banking regulator shows that between May, when equity markets resumed their downward slide, and the end of September, deposits on the books of banks in Australia rose 9 per cent.

In that period, deposits lodged with the Commonwealth rose 17.5 per cent, making up $35 billion of the $100 billion increase across the banking sector. As the credit crisis has worsened, banks have been increasingly dependent on deposits as a source of funding. Paying interest on deposits is less expensive than scouring global money markets for scarce funding.

The Wall Street investment banks Morgan Stanley and Goldman Sachs, for example, opted to take on increased regulation by the US Federal Reserve partly so they could market themselves as deposit-taking banks.

The figures add to the argument that large Australian banks have done relatively well out of the credit crisis, grabbing increased quantities of deposits and strengthening their stranglehold over the mortgage market as non-bank lenders fall by the wayside.

Commonwealth bolstered its position as the country's deposit-leader, largely at the expense of smaller, foreign-owned banks.

The deposits at the country's second biggest bank, National Australia, rose 9 per cent between May and September.

Westpac's deposit base rose 9.8 per cent, and ANZ's 7.4 per cent. St George Bank grew its deposit base by 13.6 per cent.

Deposits have also ballooned as investors pull money out of equity markets for the safety of cash and term accounts.

The figures, from the Australian Prudential Regulatory Authority, do not capture the two weeks preceding the Government's guarantee of all bank deposits on October 12, which were marked by a rush of global bank failures and a rising sense of panic.

The Government guarantee was said to have been partly triggered by a flight of deposits from smaller banks to larger rivals.

In the two weeks following the guarantee, foreign bank branches that were not covered lost of billions of dollars in deposits as money market managers shifted their funds to banks enjoying government protection.

The Government has since extended the coverage of the guarantee to all banks in Australia - including foreign bank branches - but not hard-pressed mortgage funds.

The APRA figures come as a Reserve Bank report showed the growth of credit flowing to the private sector is slowing, but less rapidly than expected. Private sector credit rose by 0.7 per cent in September, against 0.4 per cent expected by market economists.

The rise was driven by relatively strong growth in business investment. But credit for personal loans has fallen for the fourth month in a row. "It certainly points to further downside risks to retail sales data for the coming few months," said Alex Joiner, an economist with ANZ.