Maybe the RBA wants the banks to increase their rates?

[Julia]

Propping up the banks with taxpayer funds and sending a message if you stuff up the feds will support you is not a good way run the country.

No taxpayer funds were used to prop up any of our banks at all.
This is exactly the sort of misconception now held by many due to Mr Swan's disingenuous remarks.

 

[Starcraftmazter]

No taxpayer funds were used to prop up any of our banks at all.

This is extremely false for two primary reasons;

1. The First Home Owners Boost (payed for by taxpayers) was used directly to prop up our banks' asset quality and increase credit growth which directly benefited bank profits.

2. The Federal Government's wholesale debt guarantee for the banks put the risk on bank borrowing in the hands of the taxpayer - as all of us were liable for hundreds of billions of dollars of debt which the banks borrowed with the guarantee of us paying it back for them - should they fail to do so. This was a particularly risky exercise as this debt was used to further finance the biggest housing bubble in the entire world.

 

[Klogg]

This is extremely false for two primary reasons;

1. The First Home Owners Boost (payed for by taxpayers) was used directly to prop up our banks' asset quality and increase credit growth which directly benefited bank profits.

2. The Federal Government's wholesale debt guarantee for the banks put the risk on bank borrowing in the hands of the taxpayer - as all of us were liable for hundreds of billions of dollars of debt which the banks borrowed with the guarantee of us paying it back for them - should they fail to do so. This was a particularly risky exercise as this debt was used to further finance the biggest housing bubble in the entire world.

The FHB grant simply raised the value of the assets - they didn't go to the banks, although the banks did benefit from this indirectly.

As for point 2, while it was highly unlikely that the guarantee would be put to use, the taxpayer was indeed liable for a period of time. Nevertheless, it was still a good move from a confidence point of view AND because an economically strong country needs strong banks.

The world's biggest housing bubble though... we're a little far from that. I'd say there are S/E Asian countries that beat us easily on that front.

 

[Starcraftmazter]

The FHB grant simply raised the value of the assets - they didn't go to the banks, although the banks did benefit from this indirectly.

Yes it did - the money used to buy properties with comes from somewhere. And the interest to service that money has to go somewhere too....

This is however just one aspect of it. If the FHOB bailout did not happen, the housing bubble would have headed for a more violent burst, and the arrears along with plummeting assets would ruin the banks. It was in every sense money gone directly to the banks for the benefit of the banks - a true banking bailout.

As for point 2, while it was highly unlikely that the guarantee would be put to use, the taxpayer was indeed liable for a period of time.

We are still liable - not all of those loans have ended their terms yet!

Nevertheless, it was still a good move from a confidence point of view AND because an economically strong country needs strong banks.

Yes, banks so strong they need the government to bail them out!

The world's biggest housing bubble though... we're a little far from that. I'd say there are S/E Asian countries that beat us easily on that front.

Which and by how much? Australian property was overpriced by 270% at bubble peak over around 20 years. I challenge you to find a bigger bubble in property.

 

[Glen48]

Australian property is ober priced by 53% according to some expert.
Two of the banks had to borrow money under TARP to stay afloat and the taxpayers are or will be on the hook which meant the banks can do what they like and none they can be saved if they make the wrong decision.

 

[sptrawler]

This article explains it quite well.

http://www.theage.com.au/business/banks-rate-moves-reveal-system-cracks-20120213-1t0ce.html
The banks have to fatten up their balance sheets to absorb the drop in real estate prices. I would be very suprised if the RBA isn't working with them through the current situation.
The last thing the RBA wants is more house price rises, that includes freeing up more money for consumers to spend on retail and its flow on effect.
At the moment people are paying down debt, which is exactly what the RBA want, it reduces the banks exposure.
By allowing them to raise the gap between their funding and lending will accelerate the improvement in the balance sheet.
If it goes 'pop' like Glen says, we are all in the manure, it won't matter where you have your money.

 

[Julia]

As for point 2, while it was highly unlikely that the guarantee would be put to use, the taxpayer was indeed liable for a period of time. Nevertheless, it was still a good move from a confidence point of view AND because an economically strong country needs strong banks.

Exactly. Potential liability during that time is quite different from suggesting the banks were actually 'bailed out' by taxpayer funds, a fallacy that continues to be promoted.

 

[Glen48]

From Money Morning:

The Aussie government's money managers, the Australian Office of Financial Management (AOFM) already owns $14.6 billion of residential mortgage-back securities (RMBS).This is part of the program to increase competition in the Aussie mortgage market. Trouble is, it has been a total failure. The four major Aussie banks are more powerful than they've been for 30 years.

A tiny $14.6 billion won't change anything. The reason is, because like most government programs, it targets the symptom not the cause.Niice support from hard working Aussies.

If banks are rasing their rates it shows they are calling the shots and having to work in with the global markets.

The RBA doesn't matter any more.

 

[Starcraftmazter]

If it goes 'pop' like Glen says, we are all in the manure, it won't matter where you have your money.

Unless it's in gold

Exactly. Potential liability during that time is quite different from suggesting the banks were actually 'bailed out' by taxpayer funds, a fallacy that continues to be promoted.

Selective much? Back to point 1, the FHOB is a direct bailout to the banks, and the wholesale guarantee is a massive moral hazard. Like it or not, the banks were bailed out by you. And now the country is in debt because of it - and it's your responsibility to pay that debt back.

 

[Glen48]

So Julia open your hand bag and bail out the nation.
May even get a Knight hood.
We are going to go the same way as USA only worse it will just take a bit more time.

 

[Klogg]

So Julia open your hand bag and bail out the nation.
May even get a Knight hood.
We are going to go the same way as USA only worse it will just take a bit more time.

Not quite... our financial institutions are far better regulated and much better positioned to handle any downturn. That's not to say they're immune, but it'd take a fairly big event for any US style property crash to occur (like the collapse of Lehmann brothers!).

That being said, I still believe there is a correction of sorts to be had.

 

[sptrawler]

Not quite... our financial institutions are far better regulated and much better positioned to handle any downturn. That's not to say they're immune, but it'd take a fairly big event for any US style property crash to occur (like the collapse of Lehmann brothers!).

That being said, I still believe there is a correction of sorts to be had.

I don't want to be a prophet of doom, however the statement that we are in a better position to take a downturn is erroneous, our banks have a capital adequacy ratio of 10% I think I have read.
So for every $10 in they lend $100 out, doesn't sound too bouyant to me. Just hope China keeps its nerve.LOL,LOL
But I do own bank shares, my reasoning if they go down, you've all lost your money.LOL

 

[Klogg]

I don't want to be a prophet of doom, however the statement that we are in a better position to take a downturn is erroneous, our banks have a capital adequacy ratio of 10% I think I have read.
So for every $10 in they lend $100 out, doesn't sound too bouyant to me. Just hope China keeps its nerve.LOL,LOL
But I do own bank shares, my reasoning if they go down, you've all lost your money.LOL

You're right sptrawler, it is approximately 10%... However, it's not the capital requirements but the spreading (is that the correct term) of risk that is managed much better. At least that's my understanding, but I can't say I'm an expert on this by any means...

Would love to hear from someone who knows more on the topic!

 

[Starcraftmazter]

Not quite... our financial institutions are far better regulated and much better positioned to handle any downturn.

Yes, thank you Mr. Swan, Mr. News Ltd and Mr Fairfax.

That is nothing but a load of crap. Our banks are rubbish, ASIC and APRA are worthless at doing anything other than covering up our banks' foreign liabilities, their balance sheets consist of hugely overvalued property and their incompetence has led them to borrow countless billions of dollars at rates above what they give on term deposits.

If they didn't get bailed out by the taxpayers during the GFC and have their debt guaranteed by the taxpayer - they would be dead. Our banks are some of the worst capitalised in the world. Swan begged his colleagues at the Basel 3 conference to give our banks extra time to meet the new capital requirements, and they are pushing against them still.

That's not to say they're immune, but it'd take a fairly big event for any US style property crash to occur (like the collapse of Lehmann brothers!).

Not really, all bubbles burst - this is a fact of economics. Over half of all IPs belong to boomers, 2/3 of which are negatively geared. What happens as they begin to retire do you think? This is but one of the countless problems facing our housing market. Another is the oversupply that exists in many parts of the country due to bubble mechanics. Melbourne for instance.

And even though Sydney may not have a drastic oversupply, just wait until the tens if not hundreds of thousands of foreign speculators sell their IPs. The bigger they are, the harder they fall.

That being said, there are plenty of big events on the horizon; like the Greek default and the hard landing in China.

However, it's not the capital requirements but the spreading (is that the correct term) of risk that is managed much better.

How is it managed better, they have around a Trillion $ of mortgage debt on their balance sheets, against which they have liabilities. When property prices crash by 60%, inevitably the taxpayer will be forced to bail them out, shifting our private debt - the second highest in the entire world (very close to the first!) onto our public balance sheet, and giving us a nice government debt to GDP of over 100%. And that's not even counting state debt!

So how are they better spread?

 

[sptrawler]

And that is why.
Don't buy propery on the tick, and if you do buy property make sure it is one you may want to live in yourself and it returns a decent income.
Because if you are left with it, you want to be sure it is something you want.

 

[Klogg]

Yes, thank you Mr. Swan, Mr. News Ltd and Mr Fairfax.

That is nothing but a load of crap. Our banks are rubbish, ASIC and APRA are worthless at doing anything other than covering up our banks' foreign liabilities, their balance sheets consist of hugely overvalued property and their incompetence has led them to borrow countless billions of dollars at rates above what they give on term deposits.

If they didn't get bailed out by the taxpayers during the GFC and have their debt guaranteed by the taxpayer - they would be dead. Our banks are some of the worst capitalised in the world. Swan begged his colleagues at the Basel 3 conference to give our banks extra time to meet the new capital requirements, and they are pushing against them still.




Not really, all bubbles burst - this is a fact of economics. Over half of all IPs belong to boomers, 2/3 of which are negatively geared. What happens as they begin to retire do you think? This is but one of the countless problems facing our housing market. Another is the oversupply that exists in many parts of the country due to bubble mechanics. Melbourne for instance.

And even though Sydney may not have a drastic oversupply, just wait until the tens if not hundreds of thousands of foreign speculators sell their IPs. The bigger they are, the harder they fall.

That being said, there are plenty of big events on the horizon; like the Greek default and the hard landing in China.



How is it managed better, they have around a Trillion $ of mortgage debt on their balance sheets, against which they have liabilities. When property prices crash by 60%, inevitably the taxpayer will be forced to bail them out, shifting our private debt - the second highest in the entire world (very close to the first!) onto our public balance sheet, and giving us a nice government debt to GDP of over 100%. And that's not even counting state debt!

So how are they better spread?

As I said, this is what I've heard on the subject and would like to hear from someone who has an intimate knowledge of risk and how each financial institution handles it - I'll have to do my homework to check this out in more detail...

And I know that this isn't much to go by, but I know the ratings agencies (yes, the same ones that failed in the GFC) "recently rated [the Australian banks] as one of the highest in the world."

Sourced from here:
http://www.bankers.asn.au/Default.aspx?ArticleID=587

And on the topic of capitalization, there's a few figures there that show Australian banks are somewhat better capitalized than their international counterparts (Figure 3).

I realize the bias in some of these arguments, as the source is the Australian Bankers Association, but it seems to match other stats I've looked up.

Finally, as for the spread of risk, that was something I read in recent regulatory documentation from APRA (Currently contracting @ NAB IT dept), but I can't qualify it with some documentation or figures, so feel free to disregard.

And I should probably make my position clear that I do view property as over-valued with characteristics that match what is defined as a 'bubble' - I'm just doubting that it'll pop in the near future...

 

[Glen48]

If all the other banks around the world had or have been bailed out or distorted my management they is no reason why OZ banks shud be different.
Stay by for the crunch.

 

[Starcraftmazter]

And I know that this isn't much to go by, but I know the ratings agencies (yes, the same ones that failed in the GFC) "recently rated [the Australian banks] as one of the highest in the world."

Honestly, it's not much to say one piece of crap smells a bit better than another piece of crap. Rating agencies are extremely reactive when it comes to these sorts of things, they will generally not downgrade something until the market has already done that itself with CDS prices. That being said, I do not recall our banks getting the title of best in the world.

The rating agencies have however said multiple things recently;
- It is common knowledge that our banks are implicitly guaranteed by the taxpayer, which adds 2-3 notches to their credit rating

- There is a significant risk to our banking system from foreign credit

- Our property is overpriced and needs to come down to alleviate asset quality risks

Sourced from here:
http://www.bankers.asn.au/Default.aspx?ArticleID=587

Buddy, this factsheet is from 7 years ago, and some of the figures it cites are from as far back as 11 years ago.

I'm just doubting that it'll pop in the near future...

It's already began....

 

[Klogg]

Buddy, this factsheet is from 7 years ago, and some of the figures it cites are from as far back as 11 years ago.

Yeah I realize that, but I don't recall any changes to the capitalization requirements of Australian banks since then - do you?

As for the bubble already popping... I personally can't see any solid evidence of this All I've seen so far is the normal boom/bust cycle that has come to be the normal in Australian property.

Remember, the same noise was being made in late '08 and a small increase to the FHBG caused property prices to go stupid.

 

[Starcraftmazter]

Yeah I realize that, but I don't recall any changes to the capitalization requirements of Australian banks since then - do you?

For ours and the rest - they changed with Basel 3.

As for the bubble already popping... I personally can't see any solid evidence of this All I've seen so far is the normal boom/bust cycle that has come to be the normal in Australian property.

Yes, and a bust is a pop is it not? Also, just because it has been "normal" does not make it good or safe to ignore. The current boom has been many orders of magnitude bigger than past ones, and as such so will the bust.

Remember, the same noise was being made in late '08 and a small increase to the FHBG caused property prices to go stupid.

And yet after a massive amount of taxpayer money was malinvested into this bubble, property prices are again below GFC peak and falling fast. In fact, we have now had more months of falling prices than the GFC.