Bank with highest tier 1 capital ratio?

[sinner]

Hi tr,

Not sure I am qualified to answer your questions.

I do know that most credit unions do their loaning to members, generally with prudential guidelines limiting the lending to prime borrowers with max 70-80% of total value.

This is unlike the big 4 banks who obtain their debt from the wholesale market and derivatives based on it. This is the debt market that fueled massive bank growth over the last decade, and this is the debt market that I am afraid will seize up.

Frankly, I am also afraid that any major crisis in the wholesale debt market to hit our shores will badly affect both those well capitalised and those not. Whether your subscribe to the deflationary viewpoint, peak credit, hyperinflation or whatever, the demise of the wholesale debt market in its current form seems like a stark possibility.

Regardless, I feel the urge to research the issue and will watch intently to see what happens to these institutions versus those less with lower capital ratios.

As a saver, I do not feel any particular loyalty to either my ING Direct or Commonwealth Bank accounts, and will probably soon move some cash to one of these more prudent institutions as part of my overall investment strategy. I definitely subscribe to the viewpoint of keeping your money in a few different places.

 

[krk004]

Sinner,

Where are you at with your research?

Very Interested,

Regards,

 

[sinner]

Anyone remember this thread? I have still so far yet to find a CU which is open to the public and better capitalised than SGECU.

I have looked, very very hard. There are a few better capitalised ones but they are not open to the public and look very very small. GCU and LysaghtCU are good examples.

Looking at the latest "Prudential Disclosure Document" SGE have actually become less capitalised, when I first posted it was tier 1 at 22.02 and now tier 1 sits at 21.38%.

Being a Melbourne Uni staff, I have opened a MUCU account and while they are less capitalised still (16.8% on tier 1) their book is much more concentrated to residential mortgages. SGE seems to have taken on a lot of credit card and other retail debt in the last 12 months.

 

[Bushman]

Bit hard to compare.

Because their funding costs are so much higher compared to banks, so they need to keep the extra capital in reserve.

Sinner - did you follow up on Chops post? Relevant to the discussion as I am sure that the wholesale costs would be much higher for the credit union than the big 4.

 

[BELFORT]

While Tier 1 is important in reviewing a banks capital buffer, I'd be looking more closely at risk management systems+ overall management structure and past history in dealing with risk.

In terms of the big 4 having less tier 1 , they all have APRA approved management systems - and therefore are not required the same amounts of T1 as smaller credit unions etc.

T1 capital provides poor returns for banks, which is why they hold as little as they can (APRA + BASIL 2 comp).

Not to mention the adv of wholesale funding v asset backed funding for the larger banks ( lower cost of funding due to higher credit rating + no need to hold lower yielding assets)

Again , i'd be looking more closely as processes approved by APRA for the bif 4, which all differ slightly.

Cheers,

Belfort.