Banks hold more risk than before GFC | Chris Joye

Chris Joye explains why risk-weighted capital ratios used by Australia’s major banks are misleading and why true leverage is more than 20 times tier 1 capital.

It was only after 2008 when regulators allowed the majors to slash risk-weightings on home loans from 50 per cent to 15 per cent today that we have seen their reported and purely academic tier one capital measured against these newly “risk-weighted” loan assets which shrunk in value spike from 6.7 per cent in December 2007 to 10.5 per cent in June 2014.

By arbitrarily boosting the risk-free share of major bank home loans from 50 per cent to 85 per cent via the regulatory artifice that is a risk-weighting, one gets the fictional jump in their tier one capital that everyone believes is real.

Tier 1 Capital to Gross Assets

Read more at Banks hold more risk than before GFC.

One Reply to “Banks hold more risk than before GFC | Chris Joye”

  1. Wow! If Mr Joye is trying to warn me of something in his 65 word utterly unmanageable sentence, he’s overestimated my ability to juggle twenty five conflicting concepts in my head all at once, The title of the article actually makes more sense to me than the article itself. I also read (tried to understand) the full article, and I get the sense that he’s discovered a serious flaw in the world wide wealth delusion, but I still can’t grasp what he’s proposing to fix it. Still, he didn’t write it for me. Perhaps I’d have to be a banker to understand it.
    But it would make an excellent script for the ABC’s Hollowmen, or Utopia.

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