Tuesday, April 5, 2016

Australian banks are also feeling the pressure

I've written many times about the shaky nature of the world financial system.  Many banks are over-exposed to debt and financial liabilities, and could implode if things go badly (as, quite frankly, I expect them to do).

Courtesy of Australian reader Snoggeramus, we learn that Australian banks aren't immune to the contagion.  Here's an excerpt from a transcript of a TV news report.

STEPHEN LONG: The GFC [Global Financial Crisis] may be behind us, but there are many who fear Australia's banks haven't learnt the lesson from that crisis. While incomes stagnate, household debt has soared to new records. Household debt in Australia is now bigger than the entire annual output of the economy, the highest level in the world.

. . .

BRIAN JOHNSON, CLSA: There's no doubt about it all: Australian households are massively indebted.

STEPHEN LONG: Veteran bank analyst Brian Johnson is not predicting a crisis, but he is very concerned by recent research from the banking regulator which says that if there was a house price crash, Australia's biggest banks wouldn't have enough capital to cover losses on mortgages.

BRIAN JOHNSON: As I actually read the speech that APRA actually made, I've got to say it was probably one of the most disturbing things I've ever read. What they said was that the standardised banks, which is basically the regional banks, just passed. They said that the advanced banks, which is basically the major banks, that they said that they did not pass. They ...

STEPHEN LONG: They failed the stress tests.

BRIAN JOHNSON: Well, I would say did not pass means failed, but apparently I've been instructed by one of the banks that's not what it means, but it sounds like that to me. Did not - if my child came home and said, "I did not pass," I would say, "That means you failed."

There's more at the link.  Interesting reading for those interested in such things.

You have to shake your head at the political correctness on display.  A bank can't be allowed to 'fail' a stress test . . . it simply 'doesn't pass'.  Do they really think the general public are dumb enough not to be able to figure out what that means?

Suffice it to say that with major banks all around the world in a similar plight, if one nation's financial system collapses, it's more likely than not to take others with it in a sort of economic 'domino effect'.  That won't be pretty.