So here it is in black and white. It's just a matter of time before the chickens come home to roost:
http://www.theage.com.au/national/f...-ride-credit-storm-20080713-3eiz.html?page=-1
Future Fund billions help banks ride credit stormTHE Federal Government's Future Fund and the Reserve Bank have quietly propped up the banks through the global financial turmoil of the past year, ABN-Amro economists have revealed.
They say the two institutions provided a quarter of the massive growth in bank funding to fight off the global credit crunch.
As the standard mortgage rates charged by the banks approach 10%, their analysis implies that,
without that support from Government, the banks would have been forced to lift mortgage rates even higher to attract money in the markets, or else cut their lending. The
National Australia Bank and Westpac are tipped to raise their mortgage rates this week in line with those just announced by St George, the Commonwealth and the ANZ.
Rates charged by the Commonwealth and the ANZ will rise by 14 basis points today, to 9.58% and 9.62% respectively.
Banks raise the money they lend us essentially from a mixture of deposits, borrowing on financial markets, and selling off mortgage loans to other investors as securities.
But the subprime crisis has virtually shut down the market for securities, and steeply lifted the price at which banks can attract loans. And with investors nervous, even big companies have become unable to issue their own bonds and are being forced to borrow from the banks.
In a startling revelation, ABN-Amro economists Kieran Davies and Felicity Emmett say the Future Fund — set up to invest in the sharemarket — held $35 billion in bank deposits and other forms of cash in April.
Mr Davies and Ms Emmett say the fund's holdings accounted for 4% of all bank deposits in Australia, and one-third of all the rapid growth in deposits over the past year, when banks have been forced to attract deposit growth to reduce their dependence on global markets.
The Future Fund could not be contacted last night to explain why it had left its money in the bank.
It would appear to be nervous about investing tens of billions of dollars in a falling market.
At the same time, Mr Davies and Ms Emmett said the
Reserve Bank has provided $21 billion of extra funding to the banks through repurchase agreements by which it has temporarily swapped its rolled-gold assets for their slightly riskier ones, thus making the banks' more attractive to lenders.
"Adding the Reserve Bank funding to the cash held by the Future Fund, this equates to about one-quarter of the 20% annualised growth in (bank) liabilities so far during the credit crunch," they said.
But both kinds of funding, they warned, could only be temporary. The Future Fund will eventually put its money into shares, while the Reserve's swaps are only temporary.
As sharemarket analyst Marcus Padley pointed out in
The Age on Saturday, Westpac already has had to offer a 10.1% yield to attract lenders in a glutted market. With the dollar at a 25-year high, foreign markets are wary of the risk of those yields being wiped out by a currency plunge.
Senator Steve Fielding, of Family First, yesterday called on the Government to require banks to seek the approval of the Reserve Bank before raising rates independently.
But the Reserve's governor, Glenn Stevens, has consistently defended the banks' actions in raising margins.
The past week has seen a series of shocks for the economy. Westpac and the Melbourne Institute reported that consumer confidence has sunk to its lowest since 1992. The NAB reported that business confidence has plunged to its lowest level since 1991.