{"id":15095,"date":"2017-04-04T23:27:18","date_gmt":"2017-04-05T03:27:18","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=15095"},"modified":"2017-04-04T23:27:18","modified_gmt":"2017-04-05T03:27:18","slug":"apra-wayne-byres-warns-banks-need-more-capital","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2017\/04\/04\/apra-wayne-byres-warns-banks-need-more-capital\/","title":{"rendered":"APRA: Wayne Byres warns banks need more capital"},"content":{"rendered":"<p>From APRA chairman Wayne Byres&#8217; <a href=\"http:\/\/www.apra.gov.au\/Speeches\/Documents\/Fortis%20Fortuna%20Adiuvat%20-%20Fortune%20Favours%20the%20Strong.pdf\">keynote address<\/a> to the AFR Banking &amp; Wealth Summit 2017, Sydney:<\/p>\n<blockquote><p><strong>Haven\u2019t we done enough already?<\/strong><\/p>\n<p>The third question is: haven\u2019t we done enough already?<\/p>\n<p>The banking system certainly has higher capital adequacy ratios than it used to. But overall leverage has not materially declined. The proportion of equity that is funding banking system assets has improved only modestly, from a touch under 6 per cent a decade ago to just on 6\u00bd per cent at the end of 2016.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" title=\"Bank Leverage\" src=\"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2017\/04\/2017-04-05-bank-capital.png?w=525&#038;ssl=1\" alt=\"Bank Leverage\" \/><\/p>\n<p>The difference between improved risk-based measures of capital adequacy, and the more limited improvement in non-risk based measures of leverage (Chart 6), is driven to a significant degree by changes in asset composition. In particular, it reflects the increasing concentration of the banking system in mortgage lending (which benefits from lower risk weights \u2013 Chart 7).<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" title=\"Bank Risk Weighting\" src=\"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2017\/04\/2017-04-05-bank-risk-weighting.png?w=525&#038;ssl=1\" alt=\"Bank Risk Weighting\" \/><\/p>\n<p>It implies the system has de-risked more than deleveraged. But that assessment is itself premised on a critical assumption: that a high and increasing concentration in mortgages is generating a lower risk banking system. In the current environment, it is certainly an assumption that deserves a bit more scrutiny. While it might be a reasonable proposition most of the time, we need to be wary of the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Fallacy_of_composition\">fallacy of composition<\/a> when concentrations grow.<\/p>\n<p>&#8230;.The case for the Australian banking system to be seen as unquestionably strong remains as valid today as it did when the FSI recommended it in 2014. And, as much as we would like international policy deliberations to be complete, we do not think it right to defer a decision on this issue any longer&#8230;..<\/p><\/blockquote>\n<p>Bank leverage has barely improved despite substantial increases in capital ratios as banks have increasingly concentrated their exposure in residential mortgages which have lower risk-weighting. Chart 7 above shows how the average risk-weighting of bank assets has declined over the last decade.<\/p>\n<p>Neel Kashkari, president of the Minneapolis Fed, believes that banks need to hold far higher capital in order to avoid future bailouts. His <a href=\"https:\/\/goldstocksforex.com\/2016\/11\/19\/kash-call-the-economist\/\">proposal<\/a>:<\/p>\n<blockquote><p>&#8230;.force banks to finance themselves with capital totaling 23.5% of their risk-weighted assets, or 15% of their balance-sheets without adjusting for risk (the \u201cleverage ratio\u201d). This, says Mr Kashkari, would be enough to guard the financial system against a shock striking many reasonably-sized banks at once. Any bank deemed too big to fail would need a still bigger buffer, eventually reaching an eye-watering 38% of risk-weighted assets&#8230;.<\/p><\/blockquote>\n<p>It&#8217;s widely accepted that Australia&#8217;s big four banks are <em>too-big-to-fail<\/em>. If that is the case, applying Kashkari&#8217;s measure would require them to increase bank capital by 200%.<\/p>\n<p>Even without the too-big-to fail buffer, the major banks would require a 100% increase in bank capital to meet the 23.5% capital requirement for risk-weighted assets. And a 150% increase to match the 15% minimum without risk weighting.<\/p>\n<p>The question needs to be asked: is APRA doing enough to protect Australians from a financial crisis? To me the answer is a clear NO. <\/p>\n<p>Source: <a href=\"http:\/\/www.apra.gov.au\/Speeches\/Pages\/Fortis-fortuna-adiuvat-fortune-favours-the-strong.aspx\">Pages &#8211; Fortis Fortuna Adiuvat: Fortune Favours The Strong<\/a><\/p>\n<p>Hat tip to Macrobusiness.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>From APRA chairman Wayne Byres&#8217; keynote address to the AFR Banking &amp; Wealth Summit 2017, Sydney: Haven\u2019t we done enough already? The third question is: haven\u2019t we done enough already? The banking system certainly has higher capital adequacy ratios than it used to. But overall leverage has not materially declined. The proportion of equity that &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2017\/04\/04\/apra-wayne-byres-warns-banks-need-more-capital\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;APRA: Wayne Byres warns banks need more capital&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,31],"tags":[],"class_list":["post-15095","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-the-fed-banks-interest-rates"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>APRA: Wayne Byres warns banks need more capital - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"APRA: Wayne Byres warns banks need more capital - the patient investor\" \/>\n<meta property=\"og:description\" content=\"From APRA chairman Wayne Byres&#8217; keynote address to the AFR Banking &amp; Wealth Summit 2017, Sydney: Haven\u2019t we done enough already? 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The regulator made it clear yesterday that the new rules would be an interim measure based on\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":15610,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/07\/20\/australia-apra-capitulates-to-big-four-banks\/","url_meta":{"origin":15095,"position":1},"title":"Australia: APRA capitulates to Big Four banks","author":"ColinTwiggs","date":"July 20, 2017","format":false,"excerpt":"From Clancy Yeates at The Age: Quelling investor fears over moves to strengthen the financial system, the Australian Prudential Regulation Authority on Wednesday said major banks would have until 2020 to increase their levels of top-tier capital by about 1 percentage point, to 10.5 per cent. The target was much\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":12047,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/07\/13\/apra-considers-two-per-cent-capital-adequacy-increase\/","url_meta":{"origin":15095,"position":2},"title":"APRA considers two per cent capital adequacy increase","author":"ColinTwiggs","date":"July 13, 2015","format":false,"excerpt":"by Robin Christie | 14 Jul 2015 The Australian Prudential Regulation Authority (APRA) has stated that the major banks would need to increase their capital adequacy ratios by at least two per cent to meet Financial System Inquiry (FSI) recommendations. APRA has been comparing the capital position of the Australian\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":13519,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/07\/04\/more-capital-likely-for-banks-apra\/","url_meta":{"origin":15095,"position":3},"title":"More capital &#8216;likely&#8217; for banks: APRA","author":"ColinTwiggs","date":"July 4, 2016","format":false,"excerpt":"From Clancy Yeates: APRA on Monday updated a study that showed the common equity tier 1 (CET1) capital ratio of Australia's major banks were now in the top quartile of banks internationally \u2013 a key target set by the 2014 financial system inquiry......APRA said the banks' average CET1 ratios were\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":12168,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/08\/16\/cba-anz-nab-and-westpac-the-incredible-shrinking-big-four-banks-afr-com\/","url_meta":{"origin":15095,"position":4},"title":"CBA, ANZ, NAB and Westpac: The incredible shrinking big four banks | afr.com","author":"ColinTwiggs","date":"August 16, 2015","format":false,"excerpt":"Great article by Chris Joye: Welcome to the world of that beautiful $140 billion behemoth, the Commonwealth Bank, which has inverted the axiom that there is a trade-off between risk and return. Years ago I highlighted a perversion embedded at the heart of our financial system: the supposedly lowest (highest)\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10857,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/09\/10\/big-banks-may-need-41b-more-capital-ubs-says\/","url_meta":{"origin":15095,"position":5},"title":"Big banks may need $41b more capital, UBS says","author":"ColinTwiggs","date":"September 10, 2014","format":false,"excerpt":"From Chris Joye at AFR: UBS\u2019s more likely scenario of a 3 per cent TBTF capital buffer combined with an increase in the average mortgage risk weight to 25 per cent gives a total capital shortfall of $41.1 billion for the majors. Risk-weightings, especially for residential mortgages are coming under\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/15095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=15095"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/15095\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=15095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=15095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=15095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}