Paul Keating yesterday at the AFR conference:
Mr Keating said the banks were facing tighter controls as a result of the Basel rules on capital adequacy, while financial regulators had had a “gutful” of them. This was likely to lead to changes that would restrict the banks’ ability to lend.
“The housing boom is really over,” he said.
“APRA (the Australian Prudential Regulation Authority) has said ‘no more of these interest-only loans’.
“The salad days of bank lending are passing, so the banks have to get a bit smarter.”
Mr Keating said the royal commission into misconduct in the banking and financial services sector would also “make life harder” for the banks.
“They have regulators all over them,” he said of the banks.
He said banks did not really want to lend to business these days and would “rather just do housing loans”.
Mr Keating said there had been “misincentives” within the big banks to grow their business by writing new mortgages, including having a high proportion of interest-only lending.
Quite right on all counts. The range of negatives facing the bubble today is formidable:
- macroprudential tightening and the interest-only reset;
- RC inspired tighter lending standards;
- spiking bank funding costs;
- household indebtedness;
- negative gearing and SMSF reform;
- sputtering economic drivers;
- monetary policy out of ammunition;
- fiscal policy constrained;
- immigration policy under sever strain,
- and an aging business cycle plus structurally slowing China with worse ahead for national income.
Liquidate property now.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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