Aussie Banks Not So Safe

4 Mar

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

You see, $13 trillion is $13 trillion. It’s the big unspoken risk that the banks have created for themselves.

You can see the growth in off balance sheet business for yourself here:

$13 Trillion - AU Banks' Off Balance Sheet "assets"

$13 Trillion Off Balance Sheet Business = RISK

So let me make one thing clear. When you hear all the talk about banks deleveraging and de-risking, don’t believe a word of it. As you can see from the chart above, they’re in as deep as they’ve ever been.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

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3 Responses to “Aussie Banks Not So Safe”

  1. Romanoz March 30, 2010 at 12:34 pm #

    A friend of mine in Government has been hinting that all is not well with our banks. She spoke darkly about the “off balance sheet accounts” that the banks had. The Government doesnt appear to have asked for any disclosures from the banks in this regard – another blank cheque!
    I have been suspicious about the banks from the behavioural view. They havent been acting like the safest banks in the world. In spite of the Government guarantees, they are still restricting credit and seem desperate to increase their equity – see Westpac’s loan rates which are well above the market.
    They are acting suspiciously like someone trying to fix something before people find out about it.

  2. Austin March 30, 2010 at 7:42 pm #

    Our banks have been on a lending frenzy. Lending at 5% whilst borrowing from Japan at 0.5% is very very profitable.
    What happens though when the Yen goes up against the aussie dollar, and Japanese depositors want their money back. Disaster!

  3. Lance Jacobi June 10, 2010 at 6:15 am #

    Not all the Aussie can be in trouble, can they ??? Isn’t there any that are safe and stable ????

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