‘Concentrated Risk’ Threat to Aussie Banks

29 Mar

From Contrarian Investor’s Journal:

We must confess, we are getting more and more nervous about the potential for a Black Swan hitting the Australian economy. Particularly, we are looking at a vulnerability in the banking system. Here are some facts about Australian banks:

  1. As at December 2009, around 75% of the Australian mortgage market is held by the Big 4 banks. 50% are held by Commonwealth and Westpac while 25% are held by ANZ and NAB. (source: CoreData’s Australian Mortgage Report Q1 2010)
  2. 60% of Commonwealth’s lending books are residential mortgages.
  3. 50% of Westpac’s lending books are residential mortgages.

Now, here’s an interesting news report from almost two years ago:

“The Reserve Bank of Australia has a dark worry about our banks: they get 90 per cent of their cash from each other. If one bank gets into trouble, the Australian financial system could be snap-frozen overnight.”

That is only one concern for Australia’s banking system. You know, the one that we are constantly reassured is “world-leading”, “safe and secure”, “the best in the world”.  The banking system that needed a Government (ie, taxpayer)  Guarantee on customer deposits since October 2008, to stop the “run on the banks” that threatened to collapse it.  The banking system that still has wholesale funds frozen to withdrawals, leaving hundreds of thousands of retirees destitute and forced to go back on the government (taxpayer) pension.

There’s also this concern. Australia’s banks have $13 Trillion in off-balance sheet business.  Yes, that’s Trillion with a ‘T’. But, they only have $2.59 Trillion in on-balance sheet assets.

From Money Morning:

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.

Our “world-leading” Big Four banking system is a total disaster just waiting to happen. And it’s all thanks to greed… and Debt.

Barnaby is right.

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