{"id":17973,"date":"2019-03-14T00:09:17","date_gmt":"2019-03-14T00:09:17","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=17973"},"modified":"2019-03-14T01:06:11","modified_gmt":"2019-03-14T01:06:11","slug":"aussie-banks-get-a-wake-up-call-from-across-the-tasman","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/03\/14\/aussie-banks-get-a-wake-up-call-from-across-the-tasman\/","title":{"rendered":"Aussie banks get a wake up call from across the Tasman"},"content":{"rendered":"

I have long called for Australian banks to increase their equity capital in order to withstand a potential banking crisis in Australia. The Murray Commission found that banks, in a crisis, would act as “an accelerant rather than a shockabsorber”.<\/p>\n

Now the RBNZ has announced plans to force the big four banks to hold more capital in their New Zealand banking operations. From Clancy Yeates at the Sydney Morning Herald<\/a>:<\/p>\n

The Reserve Bank of New Zealand has mounted a firm defence of its plan to force Australia’s major banks to hold $NZ12.5 billion ($A12.12 billion) more in capital in their banking operations across the Tasman, saying the “highly profitable” businesses would have to accept lower returns.<\/p>\n

In an interview on Wednesday, RBNZ deputy governor Geoff Bascand also justified the plan to bolster bank balance sheets by emphasising the social costs of banking crises and arguing New Zealand could not rely on Australian parent companies for a bail-out in severe shock.<\/p>\n

……The big four Australian banks made $4.4 billion in cash profits from their New Zealand operations in 2018 representing about 15 per cent of their total combined profit with ANZ tipped to experience the most significant hit.<\/p>\n

Mr Bascand said the central bank had estimated the big four’s NZ return on equity, until recently 14 to 15 per cent, would decline by between and 1 and 3 percentage points as a result of the change.<\/p><\/blockquote>\n

Earlier, Bascand said:<\/p>\n

“At one time, the owners of a bank had plenty of skin in the game; in fact, there was a time when banks got most, or all, of their money from their owners. However, over the last century, banks have started to use less of their own money and more of other people\u2019s, and the balance has almost entirely reversed. While we are not attempting to turn back the clock …..We believe that more \u2018skin in the game\u2019 for banks will result in:<\/p>\n