Conflicted Murray mulls Basel divorce

The Australian plutocracy is really on fire today. Here’s David Murray appearing on AFR TV outlining his vision for a banking inquiry in which is emphasises efficiency over regulation, performance over competition, international problems over Australian leverage, exceptionalism over responsibility and banks over equities. Very big-bank biased stuff:

Tougher banking capital rules designed for Europe and the United States could be hurting economic growth in Australia and Asia, financial system inquiry head David Murray says.

Mr Murray acknowledged the Basel III rules that require banks around the world to hold bigger safety buffers of capital were being criticised in Asia for making it harder to finance business.

…“The Basel III system has been criticised in Asia as representing problems for financing of small and medium enterprises, of trade finance and infrastructure,” Mr Murray told Financial Review Sunday.

“There’s some unintended consequences we need to look at, and in Asia it may well be wise to study that more closely.”

The comments were backed by ANZ Banking Group deputy chief executive Graham Hodges, who raised possible economic damage by making banks set aside too much money, which can’t be used for loans.

“If we weigh up the costs and benefits of that, have we got the balance right?” Mr Hodges said in an interview.

“We would argue that we’ve invested strongly in active supervision, which you’d think should have some payback.”

Some Australian banks argue they shouldn’t be penalised for the poor lending standards of US and European banks, which almost went broke during the sub-prime mortgage collapse in the US and subsequent crises in Europe, including Ireland, Spain and Greece.

“Set aside too much money”…crikey. 60% of the bank’s balance sheets is in mortgages. The capital held against this book is calculated using opaque internal risk models that heavily discount capital reserves and nobody knows what the real capital ratio is, let alone whether it’s sufficient.

One of the bigger pushes within the Basel III  process is to standardise these opaque internal risk models so that global investors will be able to trade in an informed market.

Except here, it seems.

David Llewellyn-Smith
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  1. “possible economic damage by making banks set aside too much money, which can’t be used for loans”

    Translation: Don’t prick our ponzi.

    • Strange Economics

      “making it harder to finance business.” !.
      The banks don’t care about financing business which acutally make things or do things. Business interest rates are much higher, and difficult to get.
      And why would they lend to business, when they can lend to the housing ponzi with govt guarantees, 20% buffer on their loans from mortgage insuarance from the punters, endless addicted customers.
      To sell mortgages to the punters, these govt guaranteed and subsidised bankers pay themselves the worlds highest salaries. (Thought they were supposd to keep them from leaving for an overseas bank – unlikely).
      In UK there is a proposal to regualate banker salaries, as they are in a govt regulated,priced and protected industry. (to limit the rent extraction).
      And now the renters are running the inquiry…

  2. Ugh so stage 4 of the choke&pump brigade is to lower or even remove capital reserve requirements?

  3. A splendid exhibit in the ongoing saga

    ‘Why zero reserve banking in a private bank dominated system is a scam’

    It is not surprising that an old banker like Murray would be working hard to water down capital adequacy ratios.

    After all why would a private bank want any capital adequacy limitations when the central bank and the public purse stands ready to socialise any losses.

    The removal of reserve requirements was step 1, the watering down of capital adequacy ratios is step 2, on the road to private banking nirvana – unlimited interest loan books and bonuses and no personal downside if you screw up.

    The solution is simple.

    Reintroduce reserve ratio requirements and start increasing them until they reach 100%. A period of 10-20 years should be sufficient to increase the ratio from 0% to 100%.

    Private banks should be nothing more than mere cardigan wearing intermediaries between savers and borrowers.

    Leaving management of the money supply to their bonus chasing obsessions is madness.

  4. Pfft. We all know the taxpayer will pick up the tab when they go under … the taxpayer and the next thousand generations of taxpayers.

    • Given that they supposedly have $20 trillion in derivatives, it probably would take that long.

  5. The Russians in Crimea have nothing on these guys. This is how to take control of a country without ever firing a shot, and with most people unaware of what’s even happened.

  6. There is too much moral hazard in our financial system. The following 7 deadly assumptions will be severely tested when the GFC repeats:
    1 Depositors assume that their deposits are securely protected by govt guarantee and banks’ capital ratios
    2 Investors/business-borrowers assume that there will always be another one to flick their asset onto.
    3 Property owners assume that property prices will always rise, or at least keep pace with inflation.
    4 Bankers assume that there are always bonuses to be ‘earned’ by stimulating “low risk” mortgage lending.
    5 Banks’ shareholders assume that rising dividends will continue steadily forever, thereby justifying ever-rising share price
    6 Central banks assume that they understand and can control the dynamics of a crisis.
    7 Politicians and public servants assume that there will be others to blame, when the world’s financial system collapses.
    Like climatic global warming, we have a financial system which is vulnerable to dangerous tipping points, ie irreversible transformative events, such as plagues, famines and wars, the risks of which are underestimated, and the timing of which is impossible to predict. Stress tests of individual banks contribute little to understanding the risks in the system as a whole.
    The answer is the break up the banks into separately licenced Citizens’ (ie savings) banks, Commercial banks for existing businesses, Venture Capital banks (for start-ups) and financial services shops (fx, credit cards, trading platforms etc) with mandated risk profiles.