"Also the scenario that would cause the maximum grief is currently in progress (with steepening "normal" yield curves in Australia) and we are not seeing any "near death" experiences."
Is it ok to criticise my own post?
On reflection, there have been much worse scenarios - MUCH WORSE.
(I well remember the week in 1992 when the Bank of England jammed up interest rate 6% [trying to discourage George Soros from short selling Sterling by making it expensive to borrow] and inadvertantly they made every insurance company in Britain temporariliy insolvent!)
The big risk for Australian banks is sharply rising interest rates that might leave them negatively funding long term assets.
I don't see this as a big risk: 1. There isn't a major threat of inflation that might warrent such shock treatement; and 2. It would be very unlikely that the RBA would move rates up more than 0.25% a quarter in a tightening bias, as they know from the banks ALM returns, that this would stress on bank margins. They don't want to destablise the banks unnecessarily.
