# Which Aussie bank is best positioned to survive a 1930s style crash?



## numbercruncher (1 March 2007)

Heyas,

Ive been trying to find (with little success) which Australian banks would be safest to keep your cash in incase of a large Financial crash, banks with least Leverage, Least exposure to no Deposit/higer risk mortgages, Least foreign currency exposure, best Liquidity etc etc. Basically which banks would survive a 1930s style Crash followed by deflation, the worst case scenario!

The IMF recently made this warning to Aussie banks...

"FINANCIAL trouble in New Zealand would quickly spread to Australia through the banking system, potentially cutting Australian banks off from international funding, according to International Monetary Fund.
The IMF has identified Australian banks' exposure to New Zealand, lower lending standards, a high exposure to highly-geared households and reliance on international funding as the main risks to Australia's banks. 
"Contagion effects from New Zealand banks to Australian banks could be more severe than indicated by the relative size of their balance sheets," the IMF warned."

http://www.theaustralian.news.com.au/story/0,20867,20639720-643,00.html


I note last year that Costello announced that a Limited Gurantee scheme for depositor protection is to be introduced, but not sure if it has been? Which makes me think that a huge Crash is atleast considered by the Government.
http://www.melbournecentre.com.au/OPED_deposit_insurance.pdf

The US has recently had thousands of defaults and Bankruptcies from their Subprime (low doc Liar Loans) market and a bunch of Mortgage company bankrupties with many more expected to follow this year as the interest rates on 100s of thousands of these loans reset to higher interest rates. Unlikely as it is a crash in their housing Market and Share market could be catastrophic with global implications.

So what do you reckon, which is Australias Safest Bank?


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## Dr Doom (1 March 2007)

There is a bit of discussion here about NAB

https://www.aussiestockforums.com/forums/showthread.php?t=6005


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## cuttlefish (1 March 2007)

Seems to me that Westpac has recently become much more conservative than the other banks in terms of credit limits from what I can gather - I think they've taken a pretty conservative view over the past couple of years - but not sure what their book looks like overall.

Its a good question. Spread some cash between a few is probably the textbook answer, and if you're really paranoid have some gold under the bed lol.

Anyone got any opinions about whether the govt would step in to prop up one of the four majors in the event of a situation like that?


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## numbercruncher (1 March 2007)

Thanks Dr,

With a little research Im thinking RBA Government Bonds might be the safest place to store cash ?


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## cuttlefish (1 March 2007)

bonds aren't cash though are they?   (thought they were fixed interest securities).   So their value would potentially move in inverse proportion to cash depending on the yield curve.


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## nizar (1 March 2007)

cuttlefish said:
			
		

> bonds aren't cash though are they?   (thought they were fixed interest securities).   So their value would potentially move in inverse proportion to cash depending on the yield curve.




Correct.


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## Smurf1976 (1 March 2007)

numbercruncher said:
			
		

> The US has recently had thousands of defaults and Bankruptcies from their Subprime (low doc Liar Loans) market and a bunch of Mortgage company bankrupties with many more expected to follow this year as the interest rates on 100s of thousands of these loans reset to higher interest rates. Unlikely as it is a crash in their housing Market and Share market could be catastrophic with global implications.



US subprime lenders have been going broke at about one every second business day since December. 27 have gone bust at last count according to one site. I wouldn't say a crash in their housing market was particularly unlikely...

How long before this hits the availability of instant negative equity mortgages in Australia? A mortgage for 120% of the property's purchase price (including legal costs etc) is by definition NOT fully secured by anything of reasonably certain value. There's potential for big losses there, especially considering that for some borrowers simply walking away represents the profitable thing to do.

But as for actual safety of deposits with the major banks I'm not too worried. It's not zero risk, but banks have over the past couple of decades effectively become a utility with their business model. In 2007 it just isn't possible for most individuals or businesses to operate without at least one bank account no matter how high the fees charged.

You pay lots of $ for power, phone etc because it's rather useful to have them. Buy most power bills are at least 10 times the cost of keeping a transaction account with a bank. And yet you've got more chance of living without power than without a bank account these days. All of which leaves an incredibly large opportunity for banks to charge basically anything they want in terms of fees (as long as they all do it, which of course they would in practice). 

So worst case I see the monthy fee on transaction accounts ranking up there with rates, car rego, power etc as a reasonably large expense for most households such that the banks recover losses on dodgy loans. The banks have us as captive customers...


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## Kimosabi (1 March 2007)

numbercruncher said:
			
		

> Heyas,
> 
> Ive been trying to find (with little success) which Australian banks would be safest to keep your cash in incase of a large Financial crash, banks with least Leverage, Least exposure to no Deposit/higer risk mortgages, Least foreign currency exposure, best Liquidity etc etc. Basically which banks would survive a 1930s style Crash followed by deflation, the worst case scenario!
> 
> ...





The Perth Mint


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## lamborghini (2 March 2007)

All good points!
I can add, being a Mortgage Broker (independant) The percentage of home loans I did last year for my clients, only 10% were with the Big4 (ANZ,CBA,NAB,WBC) . 

They are not competetive against all 20 other (bank and non bank lenders on our panel). They do have the branches though, commonwealth has the most, but they look at these as expenses! These banks still follow the UK system of banking.

ING,CitiBank,RAMS and Superfunds - Don't have any branches (expenses) but are getting more market share! They follow the US system of banking. They use Brokers and F/Planners 100% - no branches or bank employees.

I know which lot I would invest in. Banks (and brokers like me) do get royalty income from each loan on their books- monthly! This is why this space is so competetive. Ultimately those with the best service (and products) will attract more loans!

Oh and all my clients personal loans I direct to 2 or 3 credit unions. 

Bare in mind this is within my business, because I choose to scan for the best loans for my clients. - Not all Brokers are independant or go to that trouble. To be competetive though, more and more brokers have to do what I and many others do!

When I started the Big 4 probably had about 70% of the loan market. That is probably 40% now and declining. Yet they still make record profits! Through increased fees, investments, financial planning and insurance. Can they keep it up? I'm not so sure!


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## Garpal Gumnut (2 March 2007)

From my reading of it  
Nab is safest and 
WBC is the most volatile.
We hold in various portfolios nab, ben, mpb, sgb cba(very little)

Garpal


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## numbercruncher (29 July 2007)

Im with CBA atm, think they are about as safe as anyone if the poo contacted the fan ?




Someone said NAB is the safest, is this because they have least exposure to the dodgy loan market ?


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## BIG BWACULL (29 July 2007)

They all are positioned to survive "they got our damn money" The question is will we survive


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## sardines (29 July 2007)

IMO, a crash isn't so scary as a long drawn out recession 1930s style...
or 1970s stagflation...


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## Smurf1976 (30 July 2007)

Smurf1976 said:


> US subprime lenders have been going broke at about one every second business day since December. 27 have gone bust at last count according to one site.



Only 4 months later and it's now 105 lenders gone bust. It's running close to one every business day at the moment. This ain't over yet...

http://ml-implode.com/


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## macca (30 July 2007)

I seem to recall that the Newcastle Permanent Building Society is regularly rated the most secure financial insto in OZ.

I might add that building soc's in NSW are much more tightly regulated than in other states.

No chance of a Pyramid collapse in NSW


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## numbercruncher (21 August 2007)

Anyone happen to know of any savings account that your capital is guaranteed by the Government, i cant find any info except that the government had explored introducing some system along those lines ...


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## YELNATS (21 August 2007)

numbercruncher said:


> Anyone happen to know of any savings account that your capital is guaranteed by the Government, i cant find any info except that the government had explored introducing some system along those lines ...




Maybe it was done in the war years (WW1 & WW2), to support the war effort, well before the CBA was privatised. Then perhaps the interest rate offered was very low, or even negative.


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## Mazrox (21 August 2007)

When I worked for the pre-privatised CommBank many moons ago (fresh out of school), the deposits were government guaranteed. I haven't worked there for years now, but I would be very surprised if that guarantee still existed. I'm pretty sure it went by the wayside around the time that the government privatised it. Maybe even before that, as part of deregulation.

I tried to find something current on it, with no luck. I did find a Mid-year budget paper from 2003-4 where it mentions government guarantees relating to the Commonwealth Bank, but only for pre 1996 employees' superannuation, and some remaining Commonwealth Development Bank Liabilities. No reference to normal bank deposits.

Maz


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## numbercruncher (21 August 2007)

Thanks for your input guys!


Just had a thought, I wonder if its removal (besides removing risk to the government) could of been because of anti-competivness , I mean if one bank had deposits guaranteed by the Gov and another didnt , it would be one hell of a draw card to attract customers ?


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## saichuen (21 August 2007)

Seriously, if there is any sort of a catastrophic financial crisis, I doubt there will be any banks safe at all. That said, I suspect the big four will probably be able to sustain it a lot better than any others.

My view only.


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## CFD (21 August 2007)

Mazrox said:


> ~~ but I would be very surprised if that guarantee still existed. I'm pretty sure it went by the wayside around the time that the government privatised it. ~~
> Maz




That's what I was thinking. Also when the big 4 suffer a period of loan defaulters they usually increase the margin (between what they pay and what they charge).


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## Nicks (22 August 2007)

The big 4 would be quite safe, but if a crash occured (as one would say recently just about did) I know which bank I wouldnt want to hold my cash or to have shares in, MBL.


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## Judd (22 August 2007)

"Anyone happen to know of any savings account that your capital is guaranteed by the Government, i cant find any info except that the government had explored introducing some system along those lines ..."

Contrary to popular belief there has not been any such guarantee.

http://www.aph.gov.au/Library/pubs/RN/1996-97/97rn44.htm

Extract of May 1997 Reseach Note in the Parliamentary Library

"Protection of Depositors

Prudential supervision by the Reserve Bank enables it to investigate the affairs of a bank, if that bank is in serious financial difficulty. The Reserve Bank may assume control of the business of the bank until the deposits have been repaid. The depositor protection provisions of the Banking Act 1959 do not constitute a formal guarantee of depositors' funds."


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## CFD (22 August 2007)

I'm sure in days gone by funds deposited with the Commonwealth Savings Bank and the Commonwealth Development Bank were covered by guarantees.


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## wintermute (11 September 2007)

Well according to an announcement today the answer would appear to be ANZ. not just locally but Globally!

from ANZ anouncement. 

ANZ ranked as leading global bank in Dow Jones Sustainability Index.

ANZ today confirmed it had been ranked the most sustainable bank globally in the Dow Jones Sustainability Index (DJSI) for 2007. ANZ achieved a score of 86% in the DJSI which is up 10 percentage points from its score in 2006, having either maintained or improved its performance on 22 of the 23 assessment criteria. ANZ is also the only Australian company to be assessed as a global sector leader in the DJSI.

Tony.


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## numbercruncher (14 September 2007)

Bank run in the UK today, all pretty neat stuff !!

Have we decided on safest Aussie bank ? Suggestion here for ANZ , but i also remember reading that they have huge exposure to NZ property market which seems rather inflated ? What happens if Sheep flu breaks out, the possibilities !


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## Jikx (15 September 2007)

Can't you just buy bonds from the RBA?
http://www.rba.gov.au/FinancialServices/CGBondFacility/index.html


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## noirua (15 September 2007)

numbercruncher said:


> Bank run in the UK today, all pretty neat stuff !!
> 
> Have we decided on safest Aussie bank ? Suggestion here for ANZ , but i also remember reading that they have huge exposure to NZ property market which seems rather inflated ? What happens if Sheep flu breaks out, the possibilities !




Hi, They've Foot and Mouth disease in Surrey, UK. Fourth time in a Month. It was let out by one of their own laboratories through a corroded drainage pipe.

One of the largest Aussie Banks lent money all over the UK in 2006/7. Have they over-reached themselves?


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## numbercruncher (16 September 2007)

Jikx said:


> Can't you just buy bonds from the RBA?
> http://www.rba.gov.au/FinancialServices/CGBondFacility/index.html





I think this is the only rock solid advice so far


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## explod (16 September 2007)

numbercruncher said:


> I think this is the only rock solid advice so far





Even Government Garanteed Bonds failed in the great depression.  My Grandfather who served in the 1st war in France came home and lost the lot.  With a steel back brace due to massive injuries he was lucky and got a job driving trams.   Died later from lung cancer caused by the gas hurled at them in the trenches.

Only the full ownership (debt free) of tangible assets can survive in a full blown crunch.   Good property, art and precious metals.   When it really bites some long shelf life food and access to your own vegies, chooks and goods to barter producers with as cash will have little value.

The global villiage will level/equalise.  We need to realise that our labour cost will have to match that of the workers in third world countries if we want to keep a job.  That is why manufacturing has moved off shore.

Anyway, wasting my breath because the complacency will continue till it is far too late.   Most on the forums are seeing the reality so will be ok.  And I have got right off the subject.


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## noirua (16 September 2007)

Macquarie Bank had problems with two of its Hedge Funds when redemptions were stopped by Bear Stearns. The stock price fell 11% at the time.

http://www.bloomberg.com/apps/news?pid=20601081&sid=aojq3bFq7KqQ&refer=australia


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## numbercruncher (21 January 2008)

I never did get around to properly preparing for the possibility of the worst other than holding some Gold.

Anyone decide which bank is safest to keep your cash with, ive stuck with CBA out of convienience 

Actually let rephrase it, which Aussie banks are more likely to face a northern rock scenario ?


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## Uncle Festivus (21 January 2008)

numbercruncher said:


> Actually let rephrase it, which Aussie banks are more likely to face a northern rock scenario ?





I'm not sure even talking about it is safe these days as the markets are not rational? You would have to look at the banks who have been trying to gain market share recently & have been willing to take on the riskier end of the market to accomplish this; maybe a Bank from the wild West??


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## Awesomandy (21 January 2008)

Uncle Festivus said:


> I'm not sure even talking about it is safe these days as the markets are not rational? You would have to look at the banks who have been trying to gain market share recently & have been willing to take on the riskier end of the market to accomplish this; maybe a Bank from the wild West??




That's exactly what I've been thinking too. In fact, when I was talking to my folks about their term deposit offers, they said that they are doing it to attract deposit aka cheap money. 

To find the safest bank, look for one that has a large deposit base and loyal customers, and one that does not accept the riskier loans. e.g. There are a couple of banks I know of that are most likely to refuse a credit card application, and would lend the least when it comes to home loans.


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## numbercruncher (22 January 2008)

Im getting close to going back long, I figure if things get to much worse bank failures could be a possibility, Id much rather have shares in solid companies than cash in a failed bank


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## ROE (22 January 2008)

Why keep cash, empty it and buy stock then you dont have to worry about leaving it in the bank


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## numbercruncher (22 January 2008)

ROE said:


> Why keep cash, empty it and buy stock then you dont have to worry about leaving it in the bank





Exactly! market is getting nearly bearish enough to buy again, Im thinking Friday might show the best prices


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## ROE (22 January 2008)

numbercruncher said:


> Im getting close to going back long, I figure if things get to much worse bank failures could be a possibility, Id much rather have shares in solid companies than cash in a failed bank




oops just realise dont company has cash bank account too hehehehehe 
really guys you worry too much.. if the whole banking system failed cash in the bank is not your only worry ..
your job will be gone, your house price would plummet... food inflation hits 1000% 

Chill out take the long weekend off and go and sit on a beach some where and drink cocktail hehe..I know I will


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## CFD (22 January 2008)

Awesomandy said:


> ~~
> To find the safest bank, look for one that has a large deposit base and loyal customers, .




If you are referring to our big4, I do not think they have any loyal customers left. They have spent the last 15 to 20 years screwing their staff and customers for all they are worth, for the benefit of their shareholders or is that for the benefit of their C.E.O.'s who's renumeration package has been based on the share performance.


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