Inside the Interbank Market: How Australia’s Biggest Banks Move Billions

Every weekday, while most of us are grabbing a flat white or checking the news, Australia’s largest banks are quietly trading billions of dollars behind the scenes. This isn’t just high finance for the sake of it—the interbank market is the beating heart of the nation’s financial system. It keeps payments flowing, credit available, and ensures that you can tap your card at the shops without a second thought. But what exactly is the interbank market, why does it matter in 2025, and how do its inner workings affect everything from business loans to your mortgage?

What is the Interbank Market and Why Does It Matter?

The interbank market is where Australian banks and major financial institutions lend to and borrow from each other, typically overnight or for very short periods. This market allows banks to manage their daily liquidity—essentially, making sure they have enough cash on hand to meet withdrawals, process payments, and fulfil regulatory requirements.

• Short-Term Lending: Most loans are overnight, but some extend to a week or more.

• Unsecured Transactions: Loans are often unsecured, relying on trust and the robust regulation of Australia’s banking sector.

• Key Benchmark: The rates banks charge each other—most notably the cash rate set by the Reserve Bank of Australia (RBA)—flow through to consumer interest rates.

Without a healthy interbank market, everyday banking would grind to a halt. It’s the oil in the machine, smoothing the gears of Australia’s entire payments and lending infrastructure.

2025: What’s New in Australia’s Interbank Market?

The past year has seen a flurry of changes for Australia’s interbank market. As of 2025, several new developments are shaping how banks interact and how those changes ripple out to the broader economy:

• RBA’s Real-Time Gross Settlement (RTGS) Upgrade: The RBA completed its NextGen RTGS platform in late 2024, improving speed, security, and flexibility. This upgrade allows banks to settle transactions instantly, reducing systemic risk and opening the door to more innovative payment products.

• Stricter Liquidity Rules: Following global trends, APRA (the Australian Prudential Regulation Authority) has tightened liquidity requirements in 2025. Banks now need to hold higher levels of high-quality liquid assets, making the interbank market even more essential for overnight balancing.

• Digital Currency Pilots: Australia’s pilot of a wholesale central bank digital currency (CBDC) is underway, with a handful of major banks now settling some interbank trades using digital AUD tokens. This could reduce costs and settlement times even further.

For bank treasury teams, these changes mean more robust, efficient, and transparent operations. For everyday Australians, they mean lower risks of payment glitches and potentially more stable borrowing costs.

How the Interbank Market Affects You: Mortgages, Loans, and Beyond

It’s easy to imagine the interbank market as a distant, abstract concept, but its influence is surprisingly close to home. Here’s how its daily ups and downs filter into your financial life:

• Interest Rates: The RBA’s cash rate, set in the interbank market, forms the benchmark for variable mortgage and business loan rates. When banks pay more to borrow from each other, these costs are passed on to consumers.

• Credit Availability: A liquid, functioning interbank market ensures banks always have access to funds. This underpins their ability to lend to households and businesses, even during periods of financial stress.

• Payment Reliability: Upgrades to the RTGS and the move toward digital settlement mean faster, more secure transactions—critical for businesses managing payroll or individuals making big purchases.

For example, the RTGS upgrade in 2024 enabled a major Australian retailer to settle supplier payments in minutes, not hours, smoothing out supply chain cash flows and reducing the risk of late fees or contract penalties.

The Road Ahead: Interbank Market Trends to Watch

Australia’s interbank market is adapting rapidly to new technologies and evolving regulation. Here are some trends set to shape the landscape in 2025 and beyond:

• Tokenisation of Money: As the CBDC pilot expands, expect more banks to experiment with tokenised settlement, potentially slashing back-office costs and fraud risks.

• Open Banking Integration: Enhanced data sharing between banks could allow more tailored liquidity solutions, making interbank trades smarter and more efficient.

• Climate Risk and Sustainable Finance: Banks are beginning to factor climate risk into their overnight lending decisions, with some interbank agreements now explicitly referencing green or sustainable criteria.

The interbank market may remain largely invisible to most Australians, but its evolution will be critical for everything from fintech innovation to mortgage affordability in the years ahead.