Foreign Banks in the Australian Banking Sector

[techhatesme]

not something likely to be on an exam but:

Are foreign banks in the Australian Banking Sector required to place all of their Aust deposits in the RBA's Overnight Exchange Settlement Account, just like other Aust Banks?

If not, then I take it that they do it through their national central Bank. If their central bank has a lower cash rate then the RBA, is it possible (though probably not economical) for foreign banks to undercut Aust Banks by offering an interest rate lower then the RBA's cash rate?

[jerry]

I don't think foreign banks have ESA with the RBA. (correct me if I'm wrong)

However, since they are foreign banks, they are regulated differently. (I think, can't recall)
For example, they might not be able to take deposits or if they can they can only take so much
or whatever. I'm not very familiar on how banking are regulated.

This limits their ability to "compete" with local banks, since they have to use savings in
other countries to lend here.

Therefore, they would be expected to adjust their interest rates along with the RBA's cash rate.

I'm not very good with monetary policy so maybe someone here can explain it better.