With all the evidence showing the overseas banking system is on the edge of collapse, Australia’s banking regulator (APRA) insists on spinning the yarn that Australian banks are just fine, so don’t worry about anything.
Today’s Australian reports:
‘Australia’s biggest banks would survive a global economic disaster that included a disorderly resolution in Europe, a double-dip recession in the US and slump in Chinese growth, under a new scenario modelled by the Australian Prudential Regulation Authority.’
That’s great news. Let’s look at the stress test and the modelling. We wish you could. But you can’t. The only analysis anyone can do of the banking stress test is to read the transcript of John Laker’s (APRA chairman) speech to the AB+F Randstad Leaders Lecture.
The transcript runs to 12 pages. But there’s no real analysis. All you’ll get from the speech is what they tell you…nothing else. APRA refuses to answer any questions regarding the stress tests.
All we know is the ‘key macroeconomic parameters’ used in the stress test. These were:
- A 5% drop in GDP in the first year of a crisis
- A rise in unemployment to a peak of 12%
- A peak to trough fall in house prices of 35%
- A fall in commercial property prices of 40%
According to APRA’s stress test the Australian banks would have made big losses but they would not collapse.
The ‘key macroeconomic parameters’ are great. But they’re also useless. What mainstream economists forget is that an economy is comprised of individuals…and each individual acts in a way that isn’t always predictable.
Sorry APRA – People are Independent Thinkers
Even the most sheepish of people will react in ways you can’t always predict. You can’t put human behaviour in a spreadsheet and accurately predict the future.
For instance, APRA won’t reveal if they’ve taken into account the probability that investors will withdraw savings from banks during a banking or financial crisis.
APRA also won’t reveal the level of savings withdrawals that would create problems for the banking sector. We know that if savers try to withdraw 100% of savings, the banking system would collapse…but what about 50%, 30% or 10% of savings? At which point would this create problems for banks?
Well, we already know the answer. Australian banks only have about 4% of savers’ money in cash or cash-like instruments. In other words, if all savers demand more than 4% of their savings in cash, the Aussie banks would need to borrow money from the central bank.
So imagine what will happen when the real financial crisis hits. Try withdrawing more than a few thousand dollars from a bank branch now…they’ll look at you like you’re a criminal… ‘What do you want the money for? Why do you need it?’
When the real financial crisis hits, Australian banks will limit withdrawals. Just as US banks did in the north east during Superstorm Sandy.
Yet APRA refuses to reveal any details of its banking stress tests. All you’ll ever know is what APRA chooses to tell you. And not surprisingly, the mainstream press gladly accepts this, repeats the ‘good news’ and moves on.
Anyone who thinks the Australian paper money and banking system can survive while it collapses the world over is seriously deluded.
APRA can chirp as much as it likes about the safety of Australian banks. But you only have to look at the state of the banking system overseas to see that the Australian banking industry (if you pardon the pun) is living on borrowed time.
Cheers,
Kris
From the Port Phillip Publishing Library
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