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

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numbercruncher

numbercruncher

Beware of Dropbears
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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?
 
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?
 
Thanks Dr,

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

Correct.
 
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.
Click to expand...
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... :2twocents
 
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 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?
Click to expand...


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

:confused:


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

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.
 
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
 
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 ?
 
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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