MacroBusiness covers Australian banks from the perspective of their macro-economic role, as political economy actors, as investment propositions and in terms of financial stability and capital adequacy. Australian banks have played a crucial role in inflating the Australian property bubble, exist within an utterly privileged position as “too big to fail” institutions and operate within a deeply distorted financial architecture that has Australian tax payers well and truly on the hook in the event of trouble. MacroBusiness seeks to define this role for investors as well as change it in the name of the Australian national interest.
From Moody’s Credit Outlook: Last Tuesday, the Australian Prudential Regulation Authority (APRA) released its latest statistics on Australian authorized deposit-taking institutions’ (ADIs) exposure to residential property, which showed an increase in the proportion of higher-risk loans underwritten by Australian banks, including investment loans, interest-only (IO) loans and loans written outside normal serviceability criteria. The increase
The Deep T. critique of bank capital ratios has exploded today at the AFR via Chris Joye: One of the first charts APRA published this week was the amount of “common equity tier one capital” held by deposit-takers as a share of “risk-weighted” assets. This is similar to the first-loss equity home owners have invested
APRA monthly banking statistics for August are out and show an interesting turn. Month on month deposits climbed: Year on year is at multi-year highs: It’s all being driven by households: It’s not term deposits, which are at multi-year lows but it’s deposits nonetheless.
By Leith van Onselen The Reserve Bank of Australia (RBA) has provided its second submission to the Murray Financial System Inquiry (FSI), which reportedly warns against moves to bolster competition in the mortgage market for fear that it would pump even more funds into property and heighten financial system risks. From Business Spectator: “The supply
From the AFR: Global rules forcing smaller banks to hold twice as much capital against mortgage lending as the big four is distorting home loan competition, The Australian Bankers Association has said. In its second submission to the Murray inquiry, the ABA argues the Australian Prudential Regulation Authority should recognise efforts by regional banks to
Wow. The banks are spooked. At the AFR, the economists of the big four banks have come together in a single voice: Australia’s four leading bank economists have a blunt message for Canberra: pass the budget or risk destroying already fragile consumer confidence. On the day Parliament resumed, with Treasurer Joe Hockey’s federal budget still up in
Here’s an interesting video from the Centre for International Finance and Regulation starring John Howard and canvassing three decades of financial system reform. Sadly it degenerates into a rambling self-endorsement that leaves one no more elucidated than prior to viewing. Still, I suppose that tells you something!
From the AFR: “The post-crisis monetary settings have distorted asset prices again,” he said in a speech in Sydney on Thursday. “That is going to cause a correction at some point, which will put more political pressure on financial systems.” …Mr Murray suggested in his interim report last month the banks might need to hold higher levels
The kool aid is flowing today in Pyrmont: A new paper by the International Monetary Fund is likely to raise further doubts that Australia should impose stricter debt limits on banks and borrowers, because such tools have been found to be ineffective in preventing a crash in asset prices. And here’s what the actual paper
From Moody’s today: Moody’s Investors Service has today affirmedthe A2 insurance financial strength rating of QBE Lenders’ Mortgage Insurance Limited (QBE LMI). At the same time, Moody’s has changed the rating outlook to negative from stable.The rating action follows the announcement by QBE LMI’s parent, QBE Insurance Group Limited (QBE, Baa2 senior unsecured rating) on 19 August 2014
The Pascometer has an interesting observation today: With QBE making issues and selling off bits and pieces to raise capital, someone more eagle-eyed than most spotted a sentence in the company’s results announcement that raises a question about whether a quiet little word has been had with the global insurance company. …”When executed, these initiatives
I’m afraid the writing is on the wall now for the great Australian mortgage bubble. When nobody wants to be in the lenders mortgage insurance business you know something is up. After the recent float of Genworth’s (GMA) formerly stellar LMI business, QBE has announced a partial float of its own LMI: QBE Insurance Group has
The country’s biggest bank knows where it’s bread is buttered. From the ABC: The chief executive of the Commonwealth Bank has weighed in with advice on the government’s budget woes, signalling compromise might ultimately be necessary. Ian Narev has told the “AM” program that the Prime Minister and Treasurer need to be pragmatic about what
Poor old CBA just can’t leave this scab alone. Then again, given everyone outside of Australia, including many that fund the CBA, knows very well that the Australian housing bubble is very real, perhaps it has no choice. From the AFR: Commonwealth Bank of Australia, the nation’s largest home loan provider, has dismissed suggestions of
From the AFR: In the biggest full-year profit for an Australian bank, Commonwealth Bank has delivered a cash profit of $8.68 billion, up 12 per cent, as it grew market share in home and business lending and bad debts remained at very low levels. The result came in a touch above analyst consensus estimates for
From Shapiro at the AFR: Global ratings agency Standard & Poor’s has lowered the outlook on Canada’s banks from stable to negative in response to the government’s “bail-in” consultation paper that seeks to ensure that bondholders rather than taxpayers stump up the costs in the event of a bank failure. The move could portent ratings
More chatter today about supposed bank competition and interest rates. The Australian reports that: Commonwealth Bank and Westpac have reportedly cut their five-year term rates by 20 basis points each, to 4 per cent and 4.15 per cent respectively, while National Australia Bank and ANZ Bank have shed 0.15 per cent and 0.18 per cent,
A few snippets from UBS for the bank profits rush in the few days: CBA (Wed, 13th Aug): FY14E NPAT $8,697m +12%, EPS 536.2c +11%, DPS 217c We expect a strong FY14E result from CBA, with solid revenue growth, positivejaws, and continuing low bad debts. Capital will be a key focus of the result, and while
From the SMH: Australian banks have relied on wholesale finance to bridge a funding gap for the fourth month in a row, as an expansion in lending continues to outstrip deposit growth. …But as lending increases, deposit growth is failing to keep pace, pushing banks to raise more debt from wholesale markets. During the year
The AFR’s Chris Joye has published a detailed article today explaining the skinny regulatory capital buffers held by Australia’s big banks and why they are so low. Joye also estimates that the five internal ratings-based banks – the Big Four and Macquarie – could face a near doubling of their capital requirements in the event
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
From the AFR: In May, amid concerns lending standards were slipping, APRA published landmark guidelines on how it expected banks to manage and monitor their mortgage risks. But a new submission on behalf of the banking industry has hit back at the plan, saying it will add costs and invites a “tick the box” mentality
The AFR is reporting today that Australian Prudential Regulation Authority general manager of policy development Neil Grummitt: …has floated changes to narrow the gap between how much capital major banks and the rest must set aside against home loans…Mr Grummit said APRA remained committed to having capital requirements that were “risk sensitive”. …Sources within one of
From ANZ CEO Mike Smith today via the AFR: “It is not just about banks, it is about the real economy – about corporations, business and individuals,” Mr Smith said. “It is one thing for a bank to complain about regulation but it is another thing for a corporation to say we are not getting finance
I’m going to do a half pirouette today. Rodney Maddock, adjunct professor of economics at Monash University and vice-chancellor’s fellow at Victoria University, appears at the AFR today argue that the Murray Inquiry is addressing too-big-to-fail: David Murray’s approach to this appears to be the correct one. When a bank fails it is important that
Here’s an interesting take on the Murray Inquiry from Macquare Bank: Bail In after Bail Out, Not Before Event The FSI elegantly dismissed competition concerns only to raise the spectre of ‘too big to fail’. The inquiry also appeared to not address the offshore wholesale funding gap (although it may well be addressed in the final report). Overall,
The conflicted Murray Inquiry is making a mockery of the the Coalition’s claim to better budget and economic management. Here we have one of the bankers principally responsible for the run-up in foreign borrowing in the big four banks that led to their GFC insolvency and off-balance sheet nationalisation running the inquiry into the run-up in foreign borrowing
Here are some of the changes that Chris Joye likes in the Murray Inquiry document (with lot’s of criticism too) A full-frontal assault on the crazy “risk-weighting” system, which allows Australia’s major banks to literally hold less than half the capital (and thus twice the leverage) of their competitors when lending against housing, which is
As I noted this morning, a little. Credit Suisse sees what I did, firmer capital charges: We see scope for mortgage risk weight floors to be introduced (negative for the majors, particularly CBA and WBC) but also scope for some small positives for the mortgage businesses of the regionals (e.g. expedited advanced accreditation, government sponsorship of RMBS markets).
The conflicted Murray Inquiry has delivered its preliminary report and it asks some useful questions but misses the really big ones and is already framing the answers in a deeply and disturbingly biased fashion. Below I’ve excerpted the three sections that cover the financial system with commentary. Competition and contestability Competition is the cornerstone of a
