By David Chaston
Most New Zealanders don't realise that their banks rely on only a slim cushion of shareholder capital to survive.
Figures from the banks' general disclosure statements show they have total shareholder funds of NZ$21.7 billion behind NZ$340.6 billion of assets (mainly loans). That means if the value of those assets loans was to drop by 6.5% the shareholder capital in those banks would be wiped out.
It means the owners of these banks effectively have NZ$21.7 billion of equity against assets 15.7 times larger than that. That's an effective loan to value ratio of 93.6%. For any home owner that would be a very aggressive level of leverage, but for a bank it's seen as normal.
[ Update: Since this article was originally published, some of the latest data, especially relating to ANZ, has been revised. You can stay up with all data updates on this permanent page here » ]
Yet the Reserve Bank of New Zealand said as recently as this week in its 6 monthly Financial Stability Report it was comfortable the banking system was "reasonably placed" to support the economic recovery.
Many commentators have argued the Global Financial Crisis was caused by financial institutions lending too much and being too leveraged.
So let's look at the leverage now built into New Zealand's banking system.
It's not a pretty picture.
The data on this page is sourced directly from each bank's quarterly General Disclosure Statement (GDS). 'Leverage' refers to the number of times the total assets of a bank (principally their loans and advances to clients) are larger than the shareholder's investment (including retained earnings) in the bank.
If you are a customer (borrower) of a bank, they will expect you to be prudent in the gearing of your affairs - a typical leverage of a trading or manufacturing firm would be 2:1 - that is something like two dollars of assets for each dollar of borrowing. But they don't apply anywhere near as stringent standard on themselves.
The level of leverage is important for investors who take a term deposit with a bank - and equally important for taxpayers who may be asked to bail out insolvent banks. If the value of their loan book needs to be written down for any reason, the level of leverage gives you a good idea of how much stress they can suffer before the shareholders are wiped out. The higher the leverage, the less stress they can tolerate.
'High shareholder returns'
High leverage allows bank shareholders to earn very high rates of return. Unfortunately shareholders have gotten used to these high returns and expect management to continue to deliver them. High shareholder returns are relatively recent attributes for banks - and many analysts, including increasing numbers of regulators, see them as inherently dangerous for these very large institutions.
There are great moral hazards involved.
It is up for debate about what a prudent level of leverage should be, but it certainly should be a 'single digit' (that is, less than 10 times) and more likely in the range of 5x to 7x.
On that basis, New Zealand banks are vastly under-capitalised. To bring them down to 7x, shareholders would need to add more than NZ$25 billion in capital to support the business they do here - although to prevent that, the banks would no doubt argue that if a leverage limit like that were to be imposed, they would leave the capital at the same level and reduce their loan books - which could take more than $150 billion "out of the economy" (equivalent to demanding that every loan be paid back by 50%).
Lower returns might also see them reduce their investment as well. The size of the problem is daunting, and could not be fixed inside a generation. But 'extending-and-pretending' will not reduce the risks to our economy. At some time in the future, stress levels will rise and create a crisis, one that will make us all very much poorer.
It is the job of the Reserve Bank to regulate banks, and they report on how they are doing in their half-yearly Financial Stability Reports.
De-risking banks is an important public task, and shareholders are going to need to accept lower returns when that happens.
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Updated 17 May 2011
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||||||||||
| (see Notes below) | ANZ- National |
ASB | BNZ | Kiwibank | Rabobank | SBS | TSB | Westpac | Totals | |
| times | times | times | times | times | times | times | times | times | ||
|
Leverage: |
|
|
|
|
|
|||||
| Mar-08 | 12.0 | 20.0 | 14.3 | 22.4 | 23.1 | 15.6 | 12.5 | 11.8 | 13.8 | |
| Jun-08 |
11.9
|
18.6 |
14.7
|
22.2
|
21.1
|
15.9
|
12.4
|
12.4
|
13.8
|
|
| Sep-08 |
11.7
|
24.2 |
16.3
|
27.3
|
21.2
|
15.6
|
12.4
|
14.5
|
14.9
|
|
| Dec-08 |
13.2
|
24.3 |
19.2
|
32.3
|
22.3
|
17.0
|
12.1
|
11.1
|
15.5
|
|
| Mar-09 |
12.5
|
23.7 |
17.9
|
27.9
|
22.7
|
16.3
|
12.6
|
14.9
|
15.7
|
|
| Jun-09 |
11.8
|
20.7 |
18.6
|
29.2
|
24.5
|
15.9
|
12.4
|
14.8
|
15.2
|
|
| Sep-09 |
11.7
|
20.4 |
18.7
|
28.0
|
24.8
|
15.6
|
12.6
|
14.5
|
15.1
|
|
| Dec-09 |
11.1
|
19.5 |
16.9
|
28.6
|
26.0
|
15.3
|
12.9
|
14.4
|
14.5
|
|
| Mar-10 |
10.8
|
18.7 |
16.9
|
26.8
|
25.0
|
14.8
|
13.3
|
14.4
|
14.2
|
|
| Jun-10 |
10.5
|
17.9 |
17.2
|
20.8
|
26.0
|
14.4
|
13.1
|
13.8
|
13.8
|
|
| Sep-10 |
11.1
|
17.4 |
17.4
|
21.3
|
11.6
|
14.2
|
13.0
|
13.6
|
13.9
|
|
| Dec-10 |
15.6
|
16.7 |
17.4
|
21.6
|
11.2
|
13.9
|
13.3
|
13.6
|
15.7
|
|
| Mar-11 |
13.7
|
|
||||||||
This data is calculated from the following ...
| (see Notes below) | ANZ-National | ASB | BNZ | Kiwibank | Rabobank | SBS | TSB | Westpac | Totals | |
| NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | ||
|
Total Assets: |
|
|
|
|
|
|
|
|||
| Mar-08 | 112,514 | 58,043 | 58,958 | 6,618 | 4,933 | 2,426 | 3,169 | 48,988 | 295,649 | |
| Jun-08 |
114,896
|
59,350 |
60,243
|
7,230
|
5,241
|
2,565
|
3,282
|
51,015
|
303,822
|
|
| Sep-08 |
117,891
|
62,933 |
64,209
|
8,183
|
5,534
|
2.612
|
3,404
|
54,509
|
319,274
|
|
| Dec-08 |
132,127
|
65,343 |
76,086
|
9,430
|
6,015
|
2,565
|
3,651
|
55,951
|
351,169
|
|
| Mar-09 |
127,941
|
65,530 |
73,301
|
9,759
|
6,303
|
2,541
|
3,832
|
54,368
|
343,575
|
|
| Jun-09 |
121,896
|
65,230 |
70,175
|
10,371
|
6,582
|
2,565
|
3,924
|
54,584
|
335,327
|
|
| Sep-09 |
117,891
|
64,784 |
69,862
|
10,786
|
6,847
|
2,612
|
4,056
|
54,509
|
331,347
|
|
| Dec-09 |
115,103
|
64,650 |
67,732
|
12,019
|
6,936
|
2,661
|
4,300
|
55,357
|
328,759
|
|
| Mar-10 |
113,577
|
64,581 |
67,268
|
12,076
|
7,107
|
2,628
|
4,405
|
56,254
|
327,896
|
|
| Jun-10 |
113,258
|
53,557 |
68,005
|
12,238
|
7,376
|
2,581
|
4,418
|
55,200
|
326,633
|
|
| Sep-10 |
116,458
|
64,750 |
69,647
|
12,642
|
7,103
|
2,572
|
4,485
|
55,179
|
332,837
|
|
| Dec-10 |
124,541
|
63,496 |
68,634
|
12,969
|
7,178
|
2,826
|
4,721
|
56,293
|
340,658
|
|
| Mar-11 |
57,695
|
|
||||||||
and ...
| (see Notes below) | ANZ-National | ASB | BNZ | Kiwibank | Rabobank | SBS | TSB | Westpac | Totals | |
| NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | NZ$mil | ||
|
Total shareholder funds: |
|
|
|
|
|
|
|
|||
| Mar-08 | 9,381 | 2,900 | 4,118 | 295 | 214 | 155 | 253 | 4,136 | 21,452 | |
| Jun-08 |
9.655
|
3,199 |
4,096
|
326
|
248
|
161
|
265
|
4,105
|
22,055
|
|
| Sep-08 |
10,088
|
2,600 |
3,933
|
300
|
261
|
167
|
275
|
3,764
|
21,388
|
|
| Dec-08 |
10,036
|
2,693 |
3,953
|
292
|
270
|
151
|
302
|
5,031
|
22,728
|
|
| Mar-09 |
10,252
|
2,765 |
4,087
|
350
|
277
|
156
|
303
|
3,648
|
21,838
|
|
| Jun-09 |
10,333
|
3,158 |
3,770
|
355
|
268
|
161
|
316
|
3,679
|
22,040
|
|
| Sep-09 |
10,088
|
3,176 |
3,745
|
385
|
276
|
167
|
323
|
3,764
|
21,925
|
|
| Dec-09 |
10,366
|
3,323 |
4,006
|
421
|
266
|
174
|
332
|
3,842
|
22,730
|
|
| Mar-10 |
10,532
|
3,456 |
3,975
|
450
|
285
|
178
|
331
|
3,908
|
23,114
|
|
| Jun-10 |
10,797
|
3,548 |
3,956
|
589
|
284
|
179
|
337
|
3,995
|
23,685
|
|
| Sep-10 |
10,446
|
3,726 |
4,002
|
593
|
614
|
181
|
344
|
4,048
|
23,955
|
|
| Dec-10 |
8,004
|
3,810 |
3,944
|
600
|
638
|
203
|
354
|
4,134
|
21,688
|
|
| Mar-11 |
4,209
|
|
||||||||
The term 'leverage' is used loosely on this page. For a fuller discussion about what it really means, see here »
Update: Since this article was originally published, some of the latest data, especially relating to ANZ, has been revised. You can stay up with all data updates on this permanent page here »
48 Comments
Yes and no.....Kiwibank has the least exposure to rural lending? which I think is a bigger risk....also I believe they used to not like to lend past 80%....so the current numbers are interesting but may not be as bad as at first glance....
If someone has more data/numbers I'd be interested to read.....certainly these numbers strike me as way too high for all of them....
regards
Kiwi Bank is aggressively advertising again 95% loan to house value.
http://www.kiwibank.co.nz/personal-banking/home-loans-options/
it would seem that with home loan,s with a deposit of 20% or less mortgage lender,s insurance is mandatory--thiis can be up to 2% of the borrowed amount--which more often than not will be tacked onto the loan i would suspect---i searched nz banks for fee information re this but drew a blank---it seems to be a nice little earner for the banks and their associated insurers---how many people know they,re paying to protect the bank if they default---another problem or issue with this product is that it,s not portable--you refinance with a low deposit or equity and you,re up for it again--life,s a minefield
http://finance.ninemsn.com.au/blog.aspx?blogentryid=801486&showcomments=true
given the recent events, here in brisbane and Christchurch using trust and insurance co,s in the same sentence would appear to be a contradiction in terms---if the banks were to exhibit some financial prudence the need for this type of insurance would become redundant--i looked at the kiwi bank loans site and they will lend to a house hold of up to six people who i assume all go on the loan contract--it,s setting them up to fail
Is it any wonder the banks are not pushing the mortgagee sales?
Does that mean every time they lose $50k on one loan they lose $1m extra loans they can offer?
On the bright side a couple of weeks of borrowings would set Kiwibank up well.
Also reversal of the tax cuts ($170m/week we are informed) would do the same in under a month.
Boom Boom!
Suppose a bank starts with 1mil capital. It receives 20mil in deposits, which it promptly lends out. So it's loan to deposit ratio is 1:1, which as a depositor, you would say is fine, because how can the bank give you a return if it doesn't lend the money out? But David would say this bank is leveraged 20:1 (OMG!)
You make a good point. But I don't think 1:1 loan-to-deposit ratio is a good standard, and $1 mil of capital supporting $20mil of loans is not good either. It does work, though, and it is working now. But would it stand a bump-in-the-road?
My argument is that the overall relationship between what shareholders have invested and the total assets is a key measure of the stress a bank can absorb. Depositors are relying on bank management to collect all those loans so they can be repaid, with interest. In times of stress low capital levels will more easily tip the bank over, and the resulting losses will get socialised.
But I am not saying we are at imminent risk right now, just that the long-term relentless rise in leverage is going the wrong way, and needs to be reversed. It has taken some time to get to this higher-risk position, and it will take a long concerted effort to reverese the trend back to a safer position.
As at Dec-10, according to the G3 data published by the RBNZ, NZ banks had about 7.5% more in customer deposits than they loaned out to customers. That level is historically low. Ten years ago it was over 35%.
I have charted that relationship here >> http://www.interest.co.nz/images/deposits-to-loans-ratio.gif
When the deposits:loan ratio is nearly 1:1, the bank shareholders are using little of their at-risk capital in the business of lending. Its nearly all depositors money being used for the business of banking. If anything goes wrong with their lending (or for that matter, anything goes wrong with their other wholesale / investment banking / funds management / treasury activities), the consequences and resolution will have to be handled by the taxpayer.
Bank balance sheets need to be de-leveraged. That will lower risk. That will also mean shareholders will have to accept lower returns (they are very high now). High returns usually indicate that investment risks are high - but shareholders are getting all the payoff for this high-risk strategy (one they have put in place) although in the event of severe stress the costs will be borne by others. There is a clear public policy interest in lowering these risks.
Agree with your basic premise that too much leverage is systemically dangerous. But, we have to remember that a bank's purpose is to make use of the savings pool by lending it out. Ideally to fund productive ventures - and this is where banking has gone wrong in the last decade or so, by excessively funding the unproductive residential real estate sector.
I think the most pertinent ratio for the NZ banks is the offshore funding ratio, which thankfully has been trending down since the GFC, but still has a way to go. Hopefully we can get to a point where NZ's domestic lending is funded by its domestic savings and we are therefore less at the mercy of international financial crises.
Slightly off topic but non the less interesting information not reported on the main street media. I don't know who stands behind this website, but I did read same information on other sites as well.
Libya - all about oil or all about banking
http://truthout.org/libya-all-about-oil-or-all-about-banking/1302678000
In terms of oil, I cant see it...mostly once a revolution occurs it takes years to get oil production back to its old level.....in Iraq's case the US isnt getting exclusive access to the iraqi oil and they wont this time so i cant see aits a gain....so I cant see a background conspiracy....
regards
Ok if anyone is so slow that they haven't picked this up yet, then they never will.
Banks and a lot of corporations will never ever ever ever act responsibly with other peoples money, unless they are absoutely forced to do it, by regulations, so you'd better make certain that they are.
If we want to people to invest in corporations, then we need to be very up front about how much of a risk people are taking by doing so, and not allow them to hide it, like which is currently the case.
Market forces is the biggest myth there has ever been.
Wow, all that extra money pumped into our economy. if the banks head back to 7X then our economy will look like Nigeria without the oil.
Here in North California houses are soo cheap. just saw 45 acres with nice 3 bedroom 2 bathroom house for 120k. Todays blog on oftwominds.com has a piece on florida.
Came across an interesting piece on share price of banks....basically it clearly shows the share price is highly linked to the profit margins and how much banks can extract, it also pretty much said that there was no link to how healthy an economy was doing to how well banks did....just on how much a bank can extract.....
I think Steve Keen? laid out some great pieces looking at the effect of debt and leveraging on an economy and it pretty much showed that we have got to the stage that we have to leverage more every year just to tread water....let alone grow....I also think this is the result of raw materials not being cheap any more, ie for a capitalist society we have to have a large multiplier between raw and finished to get growth and "adequate" profit....once raw materials got too expensive the only way left to get that profit was to rob that margin from the future...which is what we have done for at least 20 years.....enter the likes of GS....
I find that price in California fasinating....I would assume US building labour is more expensive, yet the houses cost less and just looking at their materials they get to use and the cost of the materials make me drool (Im a keen diyer).....Crazy things on prices in NZ...I can make solid composite bamboo kitchen cabinets at the same cost or less than the flat pack stuff using melamine....or even buy crappy pine finger jointed boards in Bunnings etc, that makes no sense.....
regards
Andrewj.... I know there is great opportunity in the US in property and business but do you think they want to hear it here :-) Can't recall a positive comment on the US ever on this site.
If in North Cali, checking out Lake Tahoe?
ps All the best with your travels!!!
You will occasionally see me putting in a plug for the yanks. Mostly because they are bigger than anyone else, like three times bigger, and thus have a better ability to weather the storm ahead. I like to look at it from the angle that they are bigger than the next three combined.
Do I think America will avoid depression, no as they still have to balance the books.
What I am saying is that to balance the books they are going to turn to demanding rather than borrowing. ie: you want us to protect you, well how are you going to pay for it? They are the first empire ever to borrow to keep its status, but that doesn't mean they have forgone their option to extract tributes. This is why they want the free trade agreement with us.
America has the ability to secure the world depleting supply of oil for themselves. They also have a surplus of food, and even if this world supply of food diminish because of the lack of oil, America will still be in a better position than anyone else.
scarfie
you are putting a plug in for the yanks, "they have enough food and oil"
For how long? Besides many other problems, the common practices in the US dominated by Monsanto show horrifying effects: Dr.Huber, scientist, reporting about a new pathogen depleting soils of vital elements, causing crop death and spontaneous abortion in animals which seriously undermines food production.
Besides, a government justifying and approving torture (and then calling it "enhanced interrogation technique") is not only barbarous, but outright stupid, everybody knows that under torture everybody confesses to anything they want to hear.
In Europe empress Maria Theresia (1740-1780) was the first to legislate the abolishment of torture by law, in the US in the 21.th century it is government approved. Great!
I am puzzled as to why people think the RBNZ would report the truth....lying is seen as a way to bolster confidence as is cheap credit.
piigs has become piignzs........
There is no escape from the Elephant...fools who bought the banking line about low cost mortgage debt stand to be shafted by the legal system that allows the banks to force the sale of assets...to hunt down the debtors and feed off them for life. The vineyard "owners" across NZ are discovering this truth. Many home owners have had some serious lessons in finance and law..
Bullshit to one side this country is trapped in debt and close to being unable to pay a way out...the banks decide fiscal policy and govt dictates RBNZ policy....debasement is the planned approach to wash away the debts and so bail out the party rump behind the throne.
Expect the BS to increase in intensity as November approaches. The budget will be a mass of promises and spin. Labour will embark on a journey into greater deception both of itself and any idiots who can be persuaded that cunliffe and crew have a better way out of the financial bog, which they helped create in the first bloody place.
I think the IMF had a little chat with the Bolly Bib.....Wolly...not the other way round.......
probably something like .."well if we can see what you and your bosses have been up to.....it's.... er... only a matter of time...till you get ratted out and hung up to dry....so uh your call yeah...?
Money as debt,
http://video.google.com/videoplay?docid=-2550156453790090544#
Anyone seen the sequel? Money as debt 2
http://www.youtube.com/user/compelled2283#p/c/879A14495D29C64F/0/_doYllBk5No
Hmmm, what have I been saying for SO LONG, about Kiwibank? I have just had a bit of a search for the first time I said something on it. Looks like I said THIS on Kiwiblog in Oct 2008, THANK YOU, everyone.
"............it is no accident that the smart money is going OUT of NZ and certain other countries right now, and INTO the USA.
The most fundamental indicator, is the extent to which a country’s housing market inflated relative to people’s incomes. And NZ was the worst in the world along with Ireland and Spain. So NZ needs to face up to the worst now. We are not “being dragged down by international events” contrary to popular belief, we are being PROPPED UP by the overseas ownership of our finance sector in so far as it is owned overseas. The domestic sector is a GONER and you can bet that KIWIBANK is sitting on one HUGE black hole."
“….The domestic sector is a GONER and you can bet that KIWIBANK is sitting on one HUGE black hole….”. Sorry, meant to add to that, that is in line with the general principle, the greater the political involvement, the bigger the blowout – think “Fannie Mae” and “Freddie Mac”. GREATER Government involvement NOW will only make the NEXT blowout take the State itself down directly rather than the finance sector. And Labour was moving to address the “housing affordability” issue by TAKING EQUITY in first home buyers homes. I REST MY CASE."
I said a lot SINCE then..........I SAID IT here on interest.co on a thread about Kiwibank getting aggressive with their mortgage lending:
by PhilBest | 13 Oct 10, 11:04am Oh, brother. Think Fannie
"Oh, brother. Think Fannie Mae, Freddie Mac. There's never a bubble so big as the one where taxpayer money stood behind the last institution still huffing and puffing it up.
Nicholas Arrand said ".....Just the first two paragraphs are enough to make me glad I don't have any deposits with Kiwibank. Run far, run fast......"
Sorry, the poor bloody taxpayer can't do that - unless they leave the country.
I wonder if any hedge funds have worked out ways to short Kiwibank?"
2 Qs,
1) Are they lending so agresssively because the Govn/owners insists? Seem to recall the last CEO walked recently, maybe this is why.....
2) Are the OZ banks significantly any better? in effect they are exposed to two housing bubbles, where Kiwibank only has one....residential and in NZ.....then there is farming which Im not aware kiwibank has been a significant player in?
Freddie and Fannie were totally different...the US market was simply fradulent and un-regulated and un-managed....not so here. Not to mention the actions of the private sector US banks were and are worse....and whos lobbyists ensured the gravy train continued....
Lets not forget that private individuals have borrowed because they have been allowed to with virtually a free hand mostly to dodge tax....you know have cant really have a "free-market" and personal responsibilty on the one hand and stop ppl lending on the other....its known as having your cake and eating it, doesnt work mate....
regards
I think farming represents possibly the biggest risk. What happens if farming has a few bad years? Its not like that hasn't happened before.
With the level of indebtedness in farming and what appears from this article to be a total lack of tolerance built into the banking system.. it might push us into bailout territory.
The debt is the interesting thing all over, NZ farmers (dairying at least) would be doing very well if it wasnt for the huge debt they seem to have....just have to wonder how long they can survive if the high payouts go back to norms....it just seems so silly to me.......a depression right now would be really bad IMHO....devistating....and this would seem to apply to many sectors....
regards
Excellent stuff David.
It is odd how we kow tow to borrow from an organisation that is far more leveraged than we are.
Congratulations on ignoring anything other than shareholders funds. Too many people in big business seem to think capital includes borrowed money if the amount is large. They confuse the concept of capital as equity with the vague and woolly idea of capital as a large sum of money which it's okay to spend on anything they can justify to themselves as an investment. They talk glibly about "cost of capital" when they mean interest rate.
Banks have a dangerous and cosy position in our society which they have managed to engineer over a long period of time.
In our desire to encourage a society of home owners (which I regard as a good thing - it seems to encourage responsible citizens) we have encouraged the banks to lend more and more. The unfortunate result is we have bid up the prices of our houses amongst ourselves to levels that prevent out children from affording them. This was a silly thing to do.
Banks do have a legitimate function as a intermediaries between lenders and borrowers but we have somehow encouraged them to outwit us.
They provide a service that is not subject to GST, unlike the provision of bread and beer.
How did this come about? My guess is governments have just steadily ignored the problems, being themselves largely cap in hand to banks in order to borrow to get re-elected.
When you borrow, whether as an individual or as a government, there is a loss of freedom (we call this a loss of sovereignty at a government level). As a mortgage payer one is an indentured serf. That is the unfortunate truth.
Personally I think we need to look very hard at reversing the rachet of bank favourable thinking in our society.
There are three areas I can think of immediately:
1 Why do banks not pay GST?
2 Why is interest tax deductible?
3 Why do we allow the bank to bankrupt people if they cannot afford their payments?
On the last point, if we allow banks to have recourse to an individuals' entire wealth they will lend more recklessly than if all loans are non-recourse and only subject to the collateral of the item lent against.
Banks are our society's holy cows. Why do we allow this?
Bank favourable thinking infects our thinking like a virus. Would your local council build sports stadia with wild abandon if they had to save up the money first? They justify their profligate ways by thinking they are leaving an asset to the next generation when in fact they are often leaving a far greater liability too. It's the next generation that will have to pay off the loan after all.
Useful article David. Ditto what I said here:
Have a look at the article linked by KW John, 'The Capital Rort'.
And our RB's hands are where? If they can see the risk in agricultural lending (now enforcing tighter buffer regs.) why not elsewhere? Err, everywhere?
Why don't they act? What holds them back?
Cheers, Les.
It hasn't held them back re. ag. lending adequacy regs. To avoid a rout it needs phasing-in, as they have with CFR. Timescales would be longer but I think a rout could be avoided with same, careful, but steadfast, approach.
So if it's not collapsing the house of cards, what else?
oh I agree, the banks are just going crazy.....A decade ago kiwibank would only lend me 1/4 of what they will lend me now and 80% not 95% as well.....we really needed to have limits 10 or at least 5 years ago....the chances have gone....
Personally I think JK etc are going as fast as they can to correct the imbalance in property....given the real risk it could go pear shaped....
regards
Paul Krugman on the GFC (warning its over an hour!)
Hi David, you mention that the taxpayer might eventually pay for bank losses, or socialize the losses of NZ banks, should NZ banks become stressed/insolvent. In an article by Gareth Vaughan recently it appears that the RBNZ is considering imposing losses on depositors as unsecured creditors of the banks, should banks become insolvent during a crisis. Gareth reminds us in his article that a depositor is in fact a lender to the bank and therefore a creditor. In the event of a NZ bank failure, in your view, will the NZ government bailout depositors in NZ banks with taxpayer money, or impose losses on depositors as unsecured creditors. What is your view on this possible outcome?
RBNZ sets out to ensure shareholders and creditors absorb cost of any bank failure not taxpayers
By Gareth Vaughan
Created 25 Mar 11, 11:19am
March 28, 2011 - 04:44pm, Gareth Vaughan [1]
Hi David very interesting article.
Can you advise why in qtr Dec 2010 ANZ Nationals assets rose by close to $8b yet equity fell almost $2B or 20%?
This is scary stuff.
Was it an impairment adjustment?
The banks are saying that impairment allowances are currently being released, or reversed which would suggest that equity should be rising dramatically. The reverse appears to be occurring here. (Granted data is only up to Dec 2010)
Or is it a case of cooking the books? Because to the untrained eye it looks and smells distinctly like a "fudge" to me. I'm guessing there may be some nervous execs / auditors / officials at the rbnz at the moment
Appreciate some insight
Hi there! I've just learned that the amount of banking companies on the Federal Deposit Insurance Corp.'s list of banks most at risk to crash is lower than it was in the first quarter of 2011. That amount has not fallen for nearly 5 years. While growth is indicated, it has been slow and the FDIC remains cautious. I found it here: Number of issue banks falls in second quarter. I think it would be a good news despite the fact that it indicates development in the banking industry but some say that there's an error in the report of the FDIC and there's an interpretation in the record that was not given by the said agency. They said that if the data and its other side will be studied further, there's no improvement to be stated.
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