Pure comedy

"He says bank directors have assured him that lending standards are being maintained"

Of course they are : )

So said chairman of the bank regulator, APRA, John Laker in a lecture.  John is to be commended for paying attention to risk of deterioration in lending standards as Australia's property boom explodes, but based on history how successful will he be? Link here. 

And in case you had any doubts as to how sensible Aussie banks are now being how about one which has chosen to expand into a sector which is facing the worst decline in a half century? 

Commonwealth Bank of Australia (CBA) is stepping up lending in shipping, a top bank official said, just as European rivals cut capital exposure to the seaborne sector.

Shipping has weighed heavily on its financiers, with the industry facing one of its worst downturns in decades.

Ship owners ordered large numbers of new vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s.

CBA, Australia's top lender by market value, is one of a few banks looking to expand its presence in shipping as it scents opportunities for business (here).

You couldn't maersk this up!

 (For those who missed the pun)

Banking regulation a damp squib

Heard the one about the regulator which loosened regulatory standards after pressure from industry lobbyists?  Sure you have!

Now presenting another example of regulatory capture, this time from the Australian Prudential and Regulatory Authority (APRA), responsible for setting banking standards and one of the three financial market regulators, along with ASIC and the RBA.  Or more accurately banking unstandards.  At a time when the Australian property bubble is bursting its last frothy bubbles and the securitisation industry attempts muted growth (having been responsible for the 2007-8 crisis), what better idea than to suggest that Aussie banks fill up their coffers with the toxic rubbish?!

Australian banks have stepped up their investments in residential mortgage-backed securities after regulators appeared to endorse their use towards a liquidity buffer. 

Bank treasuries have shown an increased interest in mortgage-backed bonds since August 8, when the Australian Prudential Regulation Authority published a discussion paper on Basel III liquidity reforms. 

Crucially, the paper stopped short of recommending that banks increase their holdings of high-quality liquid assets - limited to Australian government and semi-government bonds, as well as cash held at the central bank. 

That effectively gave banks a green light to increase their investments in higher-yielding assets that they can then use as collateral to access a cash facility at the Reserve Bank of Australia.(here)

And what do industry participants have to say about this move?

One banker in Sydney said regulators were being "quite soft" by not pushing lenders towards greater holdings of Australian Commonwealth Government bonds and semi-government paper... 

"If there is one thing Australian banks know, it is the domestic mortgage market.... So, banks feel very comfortable holding its RMBS," said the banker.

Oh dear! Let's hope they do a better job than Freddie Mac, AIG, Fannie May, Bear Stearns, Lehman Brothers, JP Morgan and Citibank...! 

Are your deposits safe?

A question many watching the events in Cyprus will ask.  Without going into detail about the local deposit insurance scheme for Australian banks, it was interesting to note that some online observers noticed the following policy update from the Reserve Bank of New Zealand that has depositors seeing their funds partly frozen in the event the central bank enacts a resolution.

...In addition, a portion of depositors’ and other unsecured creditors’ funds will be frozen to bear any remaining losses. To the extent that these funds are not required to cover losses as more detailed assessment of the position of the bank is completed, these funds will be released to depositors. At a high level, this outcome replicates the outcome that would apply in the event that a failed bank was liquidated. The primary advantage of the OBR scheme, however, is that depositors would have access to a large proportion of their balances throughout the process. This contrasts with what would happen under a normal liquidation, where depositors might not have access to any of their funds for a significant period....(here).

Meanwhile regulator APRA has pushed for full implementation of capital and liquidity requirements on Australian banks - a sign of greater pressure on banks and slower future growth, but any sign of weakness?

...While Australia had a more moderate experience in the lead-up to the crisis, Mr Edey said there was no doubt that some parts of the global financial system overexpanded by "a significant margin". This had been driven by one-off factors, such as deregulation and low inflation, that had now run their course...."On any reading, it seems clear this will be an environment where it's harder in general for banks and for the system as a whole to grow," he said.... (here)