Conflicted Murray Inquiry bashed

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There are three articles around this morning aimed at the big banks and the Murray Inquiry. Opening us up is Chris Joye who slams everyone, quite rightly, but especially Ian MacFarlane:

Consider, for example, how rapidly our “game-keepers” become “poachers”: the last two Reserve Bank of Australia governors, Ian Macfarlane and Bernie Fraser, and the last two Treasury secretaries, Ken Henry and Ted Evans, all joined banks’ boards – ANZ, ME Bank, NAB, and Westpac – after leaving office. The second in charge at Treasury, David Morgan, became Westpac’s chief executive in the 1990s and 2000s.

…Macfarlane also claims the 2008 and 2009 shocks that resulted in the bigger banks seeking government guarantees of their wholesale debts – most smaller banks did not use them – “[were] a liquidity crisis, not a solvency crisis”.

…If a private company needs a government to “guarantee” it will not default on its debts to raise money to replace bonds falling due, as ANZ did (but, notably, Qantas was denied), it is unambiguously dealing with a solvency problem. The government guarantees of deposits and bonds, combined with the ability of banks to borrow large amounts of emergency cash directly from the RBA, prevented them from trading insolvent during an acute liquidity crunch.

Exactly right and that’s what this inquiry should be about, above all else. Someone should ask David Murray his view. Meanwhile, the IMF has spanked David Murray’s championing of reduced capital requirements via José Viñals, financial counsellor at the IMF who said of global domestic systemically important banks (D-SIB) rules that:

…“They are designed not only for countries which went through problems in the past crisis, but also in places which didn’t suffer from the crisis,” Mr Viñals said.

“For those countries that didn’t suffer through the crisis, it will put them on a solid basis to be more resilient going forward, because we cannot anticipate the future and we don’t know where the shocks are going to come from.”

“Australia is a member of the Financial Stability Board where these financial regulations have been discussed and agreed to.”

Actually, APRA is already allowing the big banks to game the D-SIB rules so what we’re really debating is whether or not the banks will be allowed to cut their capital requirements from current paltry levels. Finally, AMP has entered a submission suggesting the opposite would be good:

Wealth giant AMP is urging the government to consider higher capital charges for Australia’s largest banks, making it the latest financial services firm to call for action to curb the big four’s dominance.

…AMP’s comments suggest the planned changes do not go far enough – echoing arguments from Bank of Queensland, Bendigo and Adelaide Bank and ME Bank.

‘‘The significant market share of the four major banks means they could be considered ‘too big to fail’ and that their failure would potentially pose a fiscal risk.’’

And so we come full circle, back to you, the exceedingly generous Australian tax-payer, the one who is really on the end of the beating.

 

Comments

  1. darklydrawlMEMBER

    I have heard a lot of chatter at social events, dinner etc (talking about housing prices of course, what else is important?) and I am normally shocked at what I hear and the misguided ‘facts’ that are ‘common knowledge’.

    The logic usually runs like this.

    – There is no risk to Aussie banks as their profits are tied to housing (which always goes up), ergo, where the risk in that? Win Win Winners.

    – There are no sub-prime loans in Australia so what happened in the US cannot happen here. Apparently we all have LVR’s of 80+ etc.

    – ‘Jingle mail’ is what largely caused the crash in the US market (no mention or Ireland or Spain I note), along with everyone having sub-prime loans.

    – Housing stock and quality in Oz is better than all those other markets that crashed. That is why our prices are so much higher.

    – Property will always double every seven years, you cannot go wrong with property.

    – (Oddly conflicted) The (insert the immigrant of your choice here) demand will keep the market up, even though some of them are clearly not happy with the level of immigration, it is better than (god forbid), falling house prices.

    – Australia is different and the high dollar is a good thing (Cheap TV’s and Holidays).

    Bloody hell. 10 minutes research on any of those topics will reveal the flaws in that logic, but no, it is easier to keep believing…

    I keep quiet at these events these days. Just smile and nod and say very little.

    • add to that list

      – Negative gearing increases the supply of low cost rental accommodation
      – rent money is dead money
      – pensioners who have their own house shouldn’t be means tested on that asset

      Unfortunately I have to keep smiling too – and that’s in discussions with my wife.

      Makes it hard to keep the faith.

    • migtronixMEMBER

      Why even go? I ask for a schedule of conversation before RSVPing – but then again I’d just spend the whole time on my phone anyways..

      • migtronixMEMBER

        Precisely 3d! Although every once in a while some idiot makes the effort – I have to set them straight by not RSVPing, not turning up and not answering calls. Dumb as they are they figure it out.

        Sitting in a room with minebots *shudders * it’d be like expecting to find intelligence in pond scum…

      • migtronixMEMBER

        @3d reports of my imminent demise are greatly exaggerated. As long as there as still creatures like you and drsmithy in the world I have plenty of incentive to keep fighting…

    • Wouldn’t you say that, on the evidence, the housing bots at your dinner parties are right and you’re wrong? Housing prices have largely gone up.

      The Murray inquiry is a travesty. The ultimate insider with fixed views on everything and an accomplice to the Hockey’s agenda, whatever it is.

      The sad part of 2008 was not that the taxpayer backed the banks but that the government didn’t extract enough value for its largesse with taxpayer money. The credit differentiated model was theoretically interesting but nothing close to the true worth of the guarantee or its risk to the taxpayer.

      Nor was there an ounce of government foresight in terms of competition in the system by allowing the big 4 to swallow small competitors.

    • It is nauseating. That said, while the taxpayer acts as backstop to the big 4, their collective market cap hovers around 25%, and every public official and his dog own IP, their smugness is not entirely misplaced.

      • The thing is Slambo, the smugness comes at a cost. To have Banks at 25% of market cap is, imho, a total mis-allocation of resources.

        The Banking System, by virtue of the taxpayer put, is just another utility function. Utility equities yield what? Maybe 6% to 10% and management earns what, maybe $1m to $2m. Where is the systemic cleverness in a 20% plus ROE for banks and management that earns $10m plus for running a utility? Couldn’t the prices that were egregiously charged for generating those returns and silly salaries be better used in the hands of bank customers ie. everyone?

        Our country is systemically stupid on this issue.

    • Nothing like Australian exceptionalism and our aspirational middle class values.

      “Oh, how’s your footy team going?”

      “Wonder what happened to that plane?”

      Meanwhile in Syria and the Ukraine…..

      You have a responsibility to educate your better half even if it’s only to manage her expectations…forget everyone else.

      You guys should read Richard Yates.

  2. I for one welcome the unstopable rise of my usury masters, and agree totally that i should contribute more to banking stability through my taxes.

    … and I’d love a job spinning for the new blue moon news paper…are there any other jobs left in the economy?