ANZ dials whaaambulance as RBA cuts its lunch

Via the AFR:

ANZ CEO Shayne Elliott has warned the Reserve Bank that its expected interest rate cuts will further drown the financial system in liquidity, hitting bank profits by squeezing margins but doing next to nothing to stimulate the economy and jobs.

Mr Elliott said he wasn’t sure what problem further easing would solve because there was little demand and the additional liquidity was forcing the bank to buy low yielding assets, further tightening the screws on profits for shareholders already punished with dividends crimped at the request of the prudential regulator.

“People don’t want it, borrowers don’t want it, it becomes a burden for me because I end up having to buy government bonds or bank it with the RBA,” Mr Elliott said.

“That has a real impact on bank margins and people sit back and go ‘Who cares?’, and well, at some point it matters because we need to generate a return.”

…If home owners don’t want a mortgage at 2.5 per cent its not clear to me they’ll want one at 2.4 per cent.

Well, Shayno, let’s ask how we got here. It has been a several decades-long process of putting your bank at the centre of macro policymaking.

First, the government gave up on controlling credit distribution and instead decided to manage the price via the cash rate, as your profits boomed.

Second, it embraced a rational market hypothesis that assumed you would act reasonably which you have ignored ever since, as your profits boomed.

Third, we installed a bunch of global capital requirements that privileged mortgages over business lending, as your profits boomed.

Fourth, we created an independent central bank that only ever cut rates as the economy became ever more dependent upon mortgage credit and house prices to grow, as your profits boomed.

Fifth, we split the prudential regulator from the central bank and buried it in smoke so you could capture it, as your profits boomed.

Sixth we added taxpayer subsidies to mortgage speculation, as your profits boomed.

Eventually, all of this credit poured into unproductive uses hollowed out the economy and asset prices became the only game in town, as your profits boomed.

As we approached the end, every time there was a cyclical hiccup, the entire shaking edifice of mortgage credit demanded ever more extreme fiscal support lest it crash, with no accountability or public ownership, as your profits boomed.

Finally, we reach today, in which enormous household debt now requires zero interest rates, wages destroying third world people flows and mass money printing simply to stay aloft. And yes, these policy levers are slowly but surely going to kill your bank as the government seeks to sustain the great bubble at whatever cost.

So, as you complain about it, just remember who brought us here and why.

David Llewellyn-Smith
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Comments

  1. Isn’t that poetic

    PS. he knows full well the reason credit isn’t flowing is because the banks are holding it back – not because “home owners don’t want a mortgage at 2.5 per cent”

    • Yeah, maybe all of those who actually ‘qualify’ for a loan (eg those where the banks can stomach the risk) have already got loans and there’s very few left who can take one on. Once the FHB’s peter out, then where will the demand come from? Those that are trading up will just swap one mortgage for another, maybe that ‘pent up demand’ is no longer pent up?

    • Yep, turns out banks don’t want to to lend much money when rates are extremely low. Why would they? I wouldn’t be keen to lend out a lot of money for a long period of time for virtually no return. It’s not like there has been a corresponding drop in risk. In fact, risks are probably increasing as house prices go higher.

      No surprise that the government is trying to put the responsibility on the borrowers.

  2. Just wait until you hear the bankers howling when central banks overseas start experimenting with MyRBA style accounts or Central Bank Digital Currencies.

    That will be a nice fat final stake through the heart of the demented private bank business model of the last 100 or so years.

    China is already running experiments and the Europeans can see the writing on the wall.

    A bank monopoly on dealing in electronic central bank liabilities is an anchronism whose days are running out.

    Fast !

    https://theglass-pyramid.com/2020/10/08/rba-watch-central-bank-digital-currency-on-the-way/

  3. That is as good a piece as you have ever written. Concise blunt and factual with an element of comeuppance in the concluding statement’s tone. Love it.

    • GunnamattaMEMBER

      Could I just add

      Seventh, we eventually had a Royal Commission which pointed pretty clearly to points 1-6 above and rbought in the concepts of regulatory failure, banking culture failure, and fraud – and it was all swept under the carpet or neutered by government, as your profits boomed

  4. Very nice article , blunt , appropriate and very well articulated. Please pass this information to MSM , ordinary citizens need to read it.

  5. “and well, at some point it matters because we need to generate a return”

    cut executive salaries then.

  6. working class hamMEMBER

    enter bcnich.
    Looks like an echo test of what an interest rate rise would sound like.