Here’s some timely news. Timely, in that we have recently seen proof that the Australian Government has included plans for a Cyprus-style “bail-in” of the banks in the 2013-14 Budget.
From today’s Australian Financial Review:
Banks vulnerable to housing collapse
Australia’s banks have the highest exposure to the residential mortgage market than banks in other major economies, making a US-style banking collapse likely should house prices plummet.
And since the AFR has a paywall that prevents us reading more, here’s MacroBusiness with details of what Moodys had to say:
The continued strong expansion in real estate loans—at least relative to other lending segments—has raised some eyebrows. The Australian banking sector has the highest exposure to residential mortgages in the world, according to the International Monetary Fund (see Chart 5). With the absence of any publicly supported securitization market—such as that provided by Fannie Mae and Freddie Mac in the U.S.—and a currently weak private securitization market, any new mortgage originations have to stay on banks’ books. This trend has been exacerbated by recent changes to RBA rules in that the central bank will accept residential mortgage-backed securities, which may be internally securitized (that is, the loans may be securitized by the originating institution and held in their entirety by the same institution on their books), as collateral for loans.
The high degree of exposure to the domestic mortgage market raises many concerns. Recent experience has shown that house prices can fall significantly and trigger serious banking meltdowns. But what are the chances of a similar housing collapse in Australia? Many international analysts think the chances of an antipodean housing bust are quite high—it would take a bold economist who has been in a decade-long coma to declare that an Australian housing correction was impossible. When trends in Australian house prices are compared globally, the signs look worrying. House prices have increased for longer and faster than in many of the markets where prices cratered during the Great Recession.
Here at barnabyisright.com, we have warned repeatedly of precisely this scenario from the inception of this blog.
The FSB-directed new regime requiring the G20 nations to bail-in their banks using depositors money is looming ever nearer.
Don’t say you weren’t warned. One example only, from 29 June 2011 –