IMF at odds with conflicted Murray inquiry


From the AFR:

The International Monetary Fund has renewed its push for ­Australia’s four largest banks to fund loans with more shareholder equity and less debt….The Washington-based institution has also controversially suggested governments consider levying a new tax on bank liabilities to discourage excessive risk-taking and to pre-fund future financial bailouts.

…The IMF says banks deemed by governments to be “too important to fail” can borrow at lower rates and take bigger risks because of an implicit government insurance subsidy.

A higher minimum capital requirement for SIBs [systemically important banks], in addition to heightened supervision and a credible resolution framework, mitigates systemic risk by providing higher loss absorbency that reduces the likelihood of an SIB becoming insolvent.”

Compare this with David Murray who was quoted yesterday emphasising the role of bank performance in its winning dominant market shares and the need to seek capital relief from Basel rules deemed excessive. This is despite the DSIB charge here being largely gamed already thanks to APRA.

Full IMF report here.

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  1. In the AFR video, DM referred to Asian countries being concerned about capital weightings for loans to small and medium enterprises, not residential mortgages where all the gaming takes place.

    In that context I agree with him, that Basel III does not address the imbalance between productive loans and non productive residential lending.

    Unfortunately this fundamental and economy destroying issue is not addressed by the IMF

    • Of course its not addressed by the IMF! Surely it should be obvious by now, by reason of all its past and present behaviours, that the IMF is simply a tool of the multinational usurer class, facilitating their predations:

      “The more economically powerful the FIRE sector becomes, the more it is able to translate this power into political influence. The most direct way has been for its members and industry lobbies to become major campaign contributors, especially in the United States, which dominates the IMF and World Bank to set the rules of globalization and debt proliferation in today’s world. Influence over the government bureaucracies provides a mantel of prestige in the world’s leading business schools, which are endowed largely by FIRE-sector institutions, as are the most influential policy think tanks. This academic lobbying steers students, corporate managers and policy makers to see the world from a financial vantage point.

      Existing rules and practices are taken for granted as ‘givens’ rather than asking whether economies benefit or suffer as a whole from a rising proportion of income being paid to carry the debt overhead (including mortgage debt for housing being bid up by the supply of such credit). Finance and banking courses teach how managers can obtain interest and asset-price gains by creating credit or using other peoples’ savings, not how an economy may best steer savings and credit to achieve the best long-term development.”

      — Michael Hudson, ‘The Bubble and Beyond’

  2. The Basle rules on risk weighting based on historically low default rates for certain asset classes changed the risk weighted return on capital of those aset classes encouraging banks to seek more and more loans in those sectors/asset classes in a search for risk weighted yield until the sector/asset class had so much debt that it was no longer stable.

    Governments, banks and regulatory bodies in Europe also failed to grasp the problems of the Euro being used by countries that had higher wages and conditions compared to the value of their output, but no mechanism for external adjustment ie exchange rate.

  3. The value of the subsidy should be recovered from the banks by imposing a fee. A tax would be too blunt an instrument and would probably introduce more distortions.
    The fee might help the banks see the merit in higher capital requirements and a resolution framework.

  4. Thank you Deep T. But neither is it by the RBA, MEGABANK or the GOVT. ETC.

    The only thing that the RBA is independent of is the Public. Ditto the rest.