{"id":15286,"date":"2017-05-15T01:29:08","date_gmt":"2017-05-15T05:29:08","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=15286"},"modified":"2017-05-15T01:29:08","modified_gmt":"2017-05-15T05:29:08","slug":"at-last-some-sensible-commentary-on-bank-levy-macrobusiness","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2017\/05\/15\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\/","title":{"rendered":"At last, some sensible commentary on bank levy | MacroBusiness"},"content":{"rendered":"

From Leith van Onselen:<\/p>\n

……The bank levy helps internalise some of the cost of the extraordinary public support that the big banks receive from taxpayers via the Budget\u2019s implicit guarantee (which provides a two-notch improvement in the banks\u2019 credit ratings), the RBA\u2019s Committed Liquidity Facility, the implementation of deposit insurance, and the ability to issue covered bonds. All of these supports have helped significantly lower the banks\u2019 cost of funding and given them the ability to derive super profits.<\/p>\n

As noted by Chris Joye on Friday, the 0.06% bank levy is also very \u2018cheap\u2019, since it would only recover around one-third of the funding advantage that the big banks receive via taxpayer support: <\/p>\n

“If the two notch government support assumption is removed from these bonds, their cost would jump by 0.17 per cent annually to 1.11 per cent above cash based on the current pricing of identical securities. So the majors are actually only paying 35 per cent of the true cost of their too-big-to-fail subsidy\u2026 <\/p>\n

Requiring banks to pay a price for the implicit too-big-to-fail subsidy is universally regarded as best practice because it minimises the significant moral hazards of having government-backed private sector institutions that can leverage off their artificially low cost of capital to engage in imprudent risk-taking behaviour.”<\/p>\n

Again, what better way to internalise some of the cost of the government\u2019s support than extract a modest return to taxpayers via the 6 basis point levy on big bank liabilities?<\/p>\n

The Turnbull Government\u2019s unexpected bank levy announcement is the single best thing to come out of the 2017-18 Budget. It deserves widespread support from the community and parliament.<\/p><\/blockquote>\n

I have my doubts that the new bank levy is a step in the right direction. Most observers would agree that the banks are getting a free ride at the taxpayers expense, but this is not a solution.<\/p>\n

Remember that the Commonwealth Treasury is not an insurance fund. And the risk premiums (levy) collected will go to fill a hole in the current budget, not to build up a fund against the future risk of a banking default.<\/p>\n

There is no way to avoid it. Australian banks are under-capitalized, with about 6% capital against unweighted risk exposure (leverage ratio). Charging a bank levy does not solve this. Raising (share) capital does.<\/p>\n

The levy merely provides the banks with another argument against raising more capital. I would much rather see a levy structured in such a way that it penalizes banks who do not carry sufficient capital, creating an incentive for them to raise further equity.<\/p>\n

Neel Kashkari, President of the Minneapolis conducted a study to determine how much capital banks need to carry to avoid relying on taxpayer bailouts<\/a>. The conclusion was that banks need about 15% capital against (unweighted) risk exposure. Too-big-to-fail banks require slightly more: a leverage ratio of about 18%.<\/p>\n

Source: At last, some sensible commentary on bank levy – MacroBusiness<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

From Leith van Onselen: ……The bank levy helps internalise some of the cost of the extraordinary public support that the big banks receive from taxpayers via the Budget\u2019s implicit guarantee (which provides a two-notch improvement in the banks\u2019 credit ratings), the RBA\u2019s Committed Liquidity Facility, the implementation of deposit insurance, and the ability to issue … <\/p>\n

Continue reading “At last, some sensible commentary on bank levy | MacroBusiness”<\/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":[57],"tags":[291,358,2090,2426,3434],"class_list":["post-15286","post","type-post","status-publish","format-standard","hentry","category-stock-markets","tag-australian-banks","tag-bank-levy","tag-leverage-ratio","tag-neel-kashkari","tag-too-big-to-fail"],"yoast_head":"\nAt last, some sensible commentary on bank levy | MacroBusiness - 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=\"At last, some sensible commentary on bank levy | MacroBusiness - the patient investor\" \/>\n<meta property=\"og:description\" content=\"From Leith van Onselen: ……The bank levy helps internalise some of the cost of the extraordinary public support that the big banks receive from taxpayers via the Budget\u2019s implicit guarantee (which provides a two-notch improvement in the banks\u2019 credit ratings), the RBA\u2019s Committed Liquidity Facility, the implementation of deposit insurance, and the ability to issue … Continue reading "At last, some sensible commentary on bank levy | MacroBusiness"\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2017\/05\/15\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\/\" \/>\n<meta property=\"og:site_name\" content=\"the patient investor\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/profile.php?id=61572934660810\" \/>\n<meta property=\"article:published_time\" content=\"2017-05-15T05:29:08+00:00\" \/>\n<meta name=\"author\" content=\"ColinTwiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"ColinTwiggs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/\"},\"author\":{\"name\":\"ColinTwiggs\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#\\\/schema\\\/person\\\/cb072791ac83e8bae585007c133d54a5\"},\"headline\":\"At last, some sensible commentary on bank levy | MacroBusiness\",\"datePublished\":\"2017-05-15T05:29:08+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/\"},\"wordCount\":490,\"commentCount\":1,\"publisher\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#organization\"},\"keywords\":[\"Australian banks\",\"bank levy\",\"leverage ratio\",\"Neel Kashkari\",\"too-big-to-fail\"],\"articleSection\":[\"Stock Markets\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2017\\\/05\\\/15\\\/at-last-some-sensible-commentary-on-bank-levy-macrobusiness\\\/\",\"name\":\"At last, some sensible commentary on bank levy | MacroBusiness - 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The Northern Rock episode was a complete anomaly. Modern bank runs stem from people pushing buttons to\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":13546,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/07\/07\/major-banks-credit-rating-outlook-cut-to-negative\/","url_meta":{"origin":15286,"position":1},"title":"Major banks’ credit rating outlook cut to ‘negative’","author":"ColinTwiggs","date":"July 7, 2016","format":false,"excerpt":"From Clancy Yeates: Australia's banks face the threat of higher funding costs, after Standard & Poor's downgraded the big four's credit rating outlook to \"negative\", a direct result of its action on the government's top-notch rating. ....the banks' credit ratings are automatically raised by two notches because S&P assumes they\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7048,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/18\/cyprus-deposit-insurance-and-moral-hazard\/","url_meta":{"origin":15286,"position":2},"title":"Cyprus: Deposit insurance and moral hazard","author":"Colin Twiggs","date":"March 18, 2013","format":false,"excerpt":"The outcry over Cyprus levy on depositors in defaulting banks raises the question: Why were depositors not more wary of where they deposited their funds? Not all banks are created equal. The reason is deposit insurance for deposits under \u20ac100,000 implied that the government would stand behind its banks and\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":15263,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/05\/12\/asx-200-bearish-consolidation\/","url_meta":{"origin":15286,"position":3},"title":"ASX 200 bearish consolidation","author":"ColinTwiggs","date":"May 12, 2017","format":false,"excerpt":"The big banks fell sharply on news of a new levy on bank liabilities in the latest budget. At this stage the ASX 300 Banks Index merely shows a secondary reaction. Breach of 8500, however, would signal a primary trend reversal, offering a medium-term target of 8000*. * Target: 8500\u2026","rel":"","context":"In "Aussie dollar"","block_context":{"text":"Aussie dollar","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/forex\/aussie-dollar\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7830,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/06\/01\/too-big-to-fail-qa-get-the-facts-sober-look\/","url_meta":{"origin":15286,"position":4},"title":"Too-big-to-fail Q&A. Get the facts | Sober Look","author":"ColinTwiggs","date":"June 1, 2013","format":false,"excerpt":"Interesting pro-bank piece by Sober Look. I have added my comments in italics. The debate around \"too big to fail\" of the US banking system is often infused with political rhetoric and media hype. Let's go through some Q&A on the subject and discuss the facts. Q: Did large banks\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1945,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/11\/17\/banks-face-funding-stress-wsj-com\/","url_meta":{"origin":15286,"position":5},"title":"Banks Face Funding Stress – WSJ.com","author":"ColinTwiggs","date":"November 17, 2011","format":false,"excerpt":"LONDON\u2014European banks, increasingly concerned about their ability to access funding, are devising complex and potentially risky new deals that enable them to continue borrowing from the European Central Bank..... They also are a sign that struggling banks across Europe are preparing for a period of prolonged reliance on financial lifelines\u2026","rel":"","context":"In "UK & Europe"","block_context":{"text":"UK & Europe","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/uk-europe-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/15286","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=15286"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/15286\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=15286"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=15286"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=15286"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}