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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: Our economy of $800 billion and yet $1.6 Trillion of UNVERIFIED LOANS? Big Four Riskier than GFC!

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Deary me.  Do we have no-one capable of telling the truth in Government and in particularly Treasury?  35% of loans are business and commercial?  So how do the banks account for the thousands of loans issued to pensioners and the documents were doctored to show "Self Employed" and then with a FAKE ABN attached that the borrower did not discover until BFCSA told members and Parliament in 2012.  Bank BDMS (Officers) sent emails to all 11,000 sellers of the broker channel: "you can now do ABN's for a day"...These loans were classified by Four Majors as "business"........................APRA never look behind the curtain and that's scary.  BOO!  Then again APRA told the Parliament 8 August 2012 there was only a 10% risk with RMBS Packs.  Then when I threw a few facts to dispel those myths onto the Senators' bench, Treasury announced it has scrapped the AOFM's purchasing of these products using $24 billion of tax payer funds.   At least we are watching what is going on!  Lying to Parliament about the state of our Banks & Nation?  APRA and ASIC have made it an art form  This email address is being protected from spambots. You need JavaScript enabled to view it.

Christopher Joye

Big four more risky than pre-GFC

New data released during the week allows us to objectively lift the lid on the true level of risk in Australia’s banking system. Remarkably the evidence suggests the biggest banks have actually reduced tier-one “equity” capital and increased leverage over the past decade, which contradicts the consensus that our banks are more conservatively capitalised since the global financial crisis.  Information published by the Australian Prudential Regulation Authority (APRA), which should be carefully inspected by David Murray’s financial system inquiry, addresses several myths that investors and financial advisers have swallowed hook, line and sinker.

The $400 billion too-big-to-fail major banks are leveraged about 10 times, right? Wrong.

But they have more loss-absorbing tier-one equity capital and less leverage than competitors? Incorrect.

Well, they have absolutely boosted equity and cut leverage after the lessons learned during the GFC about the ease with which highly geared entities fall over? Wrong again.

Every quarter, APRA reports statistics on the “performance” of all deposit-taking institutions. While the big banks like to criticise comparisons of their capital and leverage with overseas peers – which are hampered by differences in measurement methods – APRA’s data is beyond reproach. It is the final word on Aussie banking risk, given it is calculated and published by the regulator that sets the capital rules banks must abide by.  One of the first charts APRA published this week was the amount of “common equity tier-one capital” held by deposit-takers as a share of “risk-weighted” assets. This is similar to the first-loss equity home owners have invested in their property. If you have a 10 per cent deposit, you are leveraging that equity 10 times with your mortgage when you buy a home.

According to APRA, the major banks had 8.6 per cent common equity tier-one capital at June 30, 2014. That means they borrowed 91.4 per cent of the value of the assets on their balance sheets to fund them. Depositors and bond investors lend this money to banks. The assets are mainly residential home loans (about 65 per cent) and business and personal loans (the rest).  On this basis, the major banks look to be leveraged 11.6 times, which is not absurdly high. Nevertheless, APRA concludes that all “other banks” – including Bendigo & Adelaide, Bank of Queensland, AMP and SunCorp – hold significantly more equity (on average 9.8 per cent) and therefore less leverage (10.2 times) than the majors.

The remaining deposit-takers – building societies, credit unions and foreign subsidiary banks – are even more conservative. Their equity capital ranges, on average, from 15.1 per cent (foreign banks) to 16.6 per cent (building societies). Leverage is, as a result, about half the level adopted by majors at between 6.0 times (building societies) and 6.6 times (foreign banks).  Yet these capital and leverage estimates are misleading. In all other industries, leverage is calculated the same way – it simply equals the dollar value of an asset (say your home) divided by the dollar value of the equity you have in it.

But bankers and regulators heroically assume that a certain portion of residential home-loan assets are completely risk-free through the application of a concept called the “risk weighting”. Before 2008, all Australian home loans had a 50 per cent risk weighting, which meant bankers could suppose that only half the value of these loan assets would ever be at risk of loss.  If you thought a bank was holding a 10 per cent equity buffer against any losses on the home loans on its balance sheet, the real equity level before 2008 was 5 per cent. So true leverage was 20 times – not the 10 times widely believed.

 A leading bank analyst, who requested anonymity, says the 70 per cent reduction in major bank risk weightings after 2008 has been “an immense regulatory arbitrage that is the cornerstone of their comparative advantage”. He confirms this accounts for “the majors’ reported increase in tier-one capital” and believes it is “a critical problem [Treasurer] Joe Hockey must address”. 

The policy answer is not allowing governments to bail out banks by unilaterally converting debts into equity in a crisis. The banks need to hold more equity in the first place, which they will furiously resist.



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Guest Saturday, 06 June 2020