Banks

[banco]

Yeah ok, got that part. What I heard though was that if, in the event of a possible failure, the depositors would see a portion of their savings converted to some kind of bond....

You might be confusing what happens with depositor money versus what happens with hybrid issues.

 

[DeepState]

Bail-ins have occurred. A key focus of the Basel III accord, and associated rulings from local bodies that extract concepts from this, is that there needs to be a very clear understanding on what is capable of being bailed in and what is possibly not likely to because of systemic issues. Those instruments that are communicated to be clearly available for bail-in are tier 1 and tier 2 (Murray contemplates a tier 3 concept too for Australia) which include unencumbered equity and certain types of bonds/hybrids. There is nothing per se which says that senior debt and deposits can never be bailed-in. Acting as if they can never be bailed-in also brings moral hazard. However, it is a reality that crashing these brings the risk of systemic failure. The focus is then on determining which instruments can be bailed-in without systemic issues and then setting the capital requirements involving these securities so high that the concept of bailing in from higher ranked securities is moved to more remote levels. This also reduces the cost of implicit federal support in the event of bank failure.

Nonetheless, when Bank of Cyprus fell, depositors were bailed in. The Bank's balance sheet was such that it had the characteristics of a mutual fund. When the assets fell in value, this passed along very strongly to the depositors/unit-holders. Most banks are not like this.

 

[noirua]

 

[sptrawler]

Not depositors, bondholders. In essence their bonds become common equity. The idea of modern banking is always to ensure depositors lose their money only when every other avenue has been exhausted. The concept of bail ins is designed to lessen the liability on governments if a bank fails.

Once depositors, find the money they put in a Bank as savings can be lost, the Banking system will fail.
Just about everyone in Australia, has their wages direct deposited into a Bank by EFT, this was part of a National wage case years ago.
Basically the four major banks, are the Government money tap, in Australia.
There is a lot of confidence built into that, they are basically an extension of Government, in Australia.IMO
That is why there is only Four pillars, as opposed to a hundreds of two penny banks.
Much easier to regulate and oversee four, as opposed to four hundred, not that one would have thought so after the Royal Commission. lol

 

[noirua]

Will this happen again - yes:

 

[dutchie]

Does not look like the banks are too worried about the Haynes Report.

 

[Smurf1976]

Does not look like the banks are too worried about the Haynes Report.

Banks that seems true although I note that AMP shares have today hit a new low and are now lower than at any point during the Global Financial Crisis or before that the early 2000's bear market.

 

[sptrawler]

Good time to resurect this thread, as all the banks are in the same boat, falling returns, higher capital adequacy required, fines pending, lower interest margins, tighter security on money transfers, better I.T monitoring.
Yet they are being asked to free up lending, bit of a mixed signal IMO, I wonder which will give first? My guess is the fines.

 

[sptrawler]

The other thing that must be affecting the Banks bottom line, will be P2P lenders and buy now pay later providers, actually when you think about it they must be feeling the pinch and I wonder if the dividends have further to fall? Hope not or my belt tightening will have to continue.

 

[Smurf1976]

Good time to resurect this thread, as all the banks are in the same boat, falling returns, higher capital adequacy required, fines pending, lower interest margins, tighter security on money transfers, better I.T monitoring.
Yet they are being asked to free up lending, bit of a mixed signal IMO, I wonder which will give first? My guess is the fines.

I can foresee a panic among government if the economy looks like actually slipping into a technical recession and judging by the constant stream of news about slow growth, retailers and building firms going broke and so on that seems a distinct possibility.

That will be the banks' "get out of jail card" in my view. At that point the banks collectively have government over a barrel if they're smart.

 

[Smurf1976]

The other thing that must be affecting the Banks bottom line, will be P2P lenders and buy now pay later providers, actually when you think about it they must be feeling the pinch and I wonder if the dividends have further to fall? Hope not or my belt tightening will have to continue.

Short term definitely.

Longer term, let's see how these other players survive the next financial crisis when it comes along since the history of banking in recent times has been one of major consolidation of smaller players into the large ones.

Consider how many lenders were around prior to the GFC and how many were around after it. Also various deposit takers ended up becoming part of the Big 4 at that point.

In my own case well I don't change banks often but I've managed to be a customer of 4 banks using the same account. Opened an account with the SBT (Savings Bank of Tasmania - that was a private bank not a government one) in 1981. Sometime circa 1990 that merged with Tasmania Bank (a government "state bank") to become the Trust Bank. A decade or so later Trust Bank was taken over by Colonial First State which not too long afterward ended up being swallowed up by CBA.

There'd be a lot of people who previously banked with small state or regionally based banks who'd have a similar story to that one. Opened an account with whoever, they merged with something else which some mid-tier took over and then they were gobbled up by one of the big 4.

Open an account with any smaller bank, keep it, and odds are you'll end up with one of the big 4 eventually. Might take 20 or 30 years to get there but you will eventually and I expect that basic pattern to continue whenever the next crisis arrives as it surely will.

The big 4 are a bit like casinos really. So long as everyone keeps playing they end up taking the money eventually with the only question being the detail of how that occurs.

 

[qldfrog]

I believe a clear consequence of the fire is a gdp growth
So no technical recession ahead in my books..no easy way out for the bank.....

 

[sptrawler]

Like I said four posts ago, I think it is a good time to resurect this thread, I think there is going to be a lot of action going on if the foreseable future.
Australia's financial stability is dependent on a stable banking system, they basically carry out the money flow control for the RBA and are regulated.
The problems that are surfacing now, are what happens at the unregulated levels.
https://www.abc.net.au/news/2020-01...tgage-lending-risks/11869276?section=business
The problem is the more the regulators clamp down on regulated entities, the more unregulated lenders flourish, which in turn negates the regulation.
OMG. This is getting bigger than Ben Hur.

 

[sptrawler]

The really funny thing is, if this all implodes, the SMH will be asking why wasn't Scomo all over it.
Jeez if it does implode, I hope Scomo isn't on holidays.

 

[dyna]

CBA CAPE: 23.01
WBC CAPE: 20.5
ANZ CAPE: 17.96
NAB CAPE: 14.64

CAPE....Something I've been reading about, lately. Only ever mentioned on this forum, in this old post.
Cyclically..Adjusted..P.E. ratio [ developed by a Nobel Economics winner ] currently sitting at 24 in this country, but above 38 in the states. The only time it has ever been higher was just before the dotcom bust.
The theory, based on what's happened in the past, predicts an annual return of 1% for the US market ( and about 9% chez nous ,here in OZ ). As a timing tool , CAPE seems perfectly hopeless, as the US market has been above its long term average for the past 20 years !

 

[Garpal Gumnut]

From my good friend Gotti in the Australian.

Q. Whither now for the banks?

A. Between a rock and a hard place.

gg

 

[Dona Ferentes]

Today’s bank profits will be vital if the economy slows down, and the sector’s interests are aligned with those of customers.

CBA's Matt Comyn used the example of a $500,000 mortgage. Under the prudential rules, CBA’s shareholders have to put $15,000 aside to protect the bank from unexpected losses (this is known as capital in the banking sector) and expected losses (known as provisions).

If that customer were to strike trouble, and move to an interest-only loan, the amount of capital required increases by $4000. But if the loan is past 90 days due, and is technically considered in default, then that original $15,000 of capital and provisions shoots up to $100,000.

“So, you can see there’s a huge incentive to both support customers and to get customers through, and also a huge cost if we go into more difficult times,” Comyn explained.

CBA can hold $5 billion in capital, and $2 billion in provision it has taken over and above what its economic analysis says is required, is this possible because of its profitability. That capital and provision will protect the bank and the banking system in times of stress, but it will also mean CBA can continue to lend through any downturn.

Comyn says the European experience shows us that banks that were unprofitable before the GFC had little capacity to lend after the crisis, choking off credit and compounding the region’s economic downturn.

 

[noirua]

Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

Fitch Ratings warned that U.S. banks have inched closer to sweeping rating downgrades on dozens of lenders, including JPMorgan Chase and Bank of America.

www.cnbc.com

Are US Banks On Shaky Ground? Stocks Tumble As Fitch Sounds Alarm On Potential Downgrades - BlackRock (NYSE:BLK), Invesco KBW Bank ETF (NASDAQ:KBWB), SPDR Select Sector Fund - Financial (ARCA:XLF), Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM

Fitch Ratings raised alarms about the looming threat of rating reductions for numerous U.S. banks, with even giants such as JPMorgan Chase & Co. (NYSE: JPM) potentially in the crosshairs. Chris Wolfe, an analyst at Fitch, highlighted that while the agency lowered its outlook on the banking...

www.benzinga.com

 

[noirua]

No bank is safe, implosion coming: 'Every single bank is insolvent' — Lynette Zang​

Published:
Apr 08, 2024 - 4:14 PM

 

[divs4ever]

define 'insolvent'

don't worry that definition will change to fit a narrative , just like the definition of 'recession ' has

MMT can work as a theory , but humans get side-tracked by the distraction of easy credit ( earnings pulled from the distant future )