Deep T. bank capital critique makes the big time

In case any of you are wondering whether MB is worth supporting, the following little piece from Banking Day should strengthen your resolve. MB’s senior banking blogger, Deep. T., has been criticising Australian banks capital ratios (especially in reference to their international peers) for four years. That analysis is now bearing fruit. From Banking Day where John Watson writes:

In a significant development on reporting of capital ratio comparisons, both David Murray, chairman of the FSI and Wayne Byers, chairman of APRA, have come out in the last week and cast doubt on the major bank claims that, when compared to international peers, they actually have higher capital ratios than they report under APRA’s supervision. 

In May of this year Morgij Analytics and John Watson of Margate Financial Research Solutions released their research findings on the validity of Australia’s major banks reporting to investors that their capital, when compared to international counterparts, is significantly higher than what’s reported under APRA’s mandated capital calculations. 

The impact of these calculations is to imply the major banks are carrying more capital than is required by international lawmakers and gives the impression that APRA’s requirements are far harsher than those of other regulators. 

In their investor presentations the majors portray capital harmonisation as a straightforward calculation process that simply assumes that other jurisdictions only require minimum standards and makes no allowances for IRB model variations, differences in definition of capital, allowable deductions etc. 

Indeed, the majors typically assert in their investor presentations that when comparing their capital ratios to overseas banks, investors should make an upward adjustment of between 182 basis points and 290 bps in order to harmonise capital ratios calculated under APRA requirements to Basel Committee on Bank Regulation “Basel III” minimum requirements – refer to the comparison table below. 

…Will the Majors remove their questionable harmonised capital comparisons from their upcoming results briefing presentations or will the temptation to present their capital positions as healthier than reality in order to minimise their funding costs continue? 

Change comes a little at a time through small steps by people like you.

Houses and Holes
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  1. Good work

    Slowly but surely more and more people are looking more sceptically at the claims made by our banks.

    Their three decades in the midday sun is coming to an end.

  2. Unfortunately, all bank tier 1 capital stats are bogus due to rehypothecation; the process of relending tier 1 capital an unlimited number of times.

      • Yup, “essentially fully hedged”, according to Guy Debelle.

        Just don’t read the RBA paper referenced in the footnote, wherein you will be thrilled to discover that “essentially fully hedged” means circa $300 billion Net Long foreign currencies … based on (at the time of making the speech) 3 year old self-reported bank survey data.

  3. RapperWithABaby

    Not to detract from the good efforts of Deep T but how have we arrived at the conclusion that Watson’s critique has emerged because of said efforts over the last 4 years?