Australian banks have had a great 'pandemic'. Interest rates are low, deposits have soared and they are flush with capital. Plus the government has been propping up their customers with free cash.
Banks are, of course, crucial infrastructure in any economy, so that is not a bad thing if you are worried about a financial crisis. Plus they are inevitably a big part of any superannuation portfolio.
But as Graham Hand of Firstlinks points out, they have been getting an extraordinary amount of assistance from the government and depositors.
"Here's a brief list of aids handed to the banks, their executives and their shareholders in the last year:
* Provide a three-year Term Funding Facility (TFF) for $200 billion at a cost of only 0.1%.
* Reduce the cash rate to 0.1% to create massive demand for our largest asset class, home lending, and push up prices to make our security more valuable.
* Purchase hundreds of billions of bonds and securities to ensure plentiful liquidity and allow us to hold higher-yielding securities.
* Give some of our customers access to their superannuation since we are no longer focussed on that troublesome business.
* Pay $90 billion in JobKeeper to businesses with no check required on whether the policy retained jobs or company turnover actually fell.
* Introduce an SME Guarantee Scheme to improve access to business credit and a Boosting Cash Flow for Employers Scheme.
* Adopt a HomeBuilder programme of $25,000 grants to first-home buyers even if the money ends up in the hands of land developers.
* Allow business tax relief and full expensing of eligible assets.
* Relaxation of the responsible lending laws, contrary to the findings of the Financial Services Royal Commission."
What is really telling is that the banks biggest exposure, to offshore funding costs, is very low. They have an extremely high level of domestic deposits, on which of course they are paying very low interest. It makes them very safe:
Their capital ratios (the money they hold in reserve for any crisis) is also very high:
It all adds up to a pretty buffered environment. The only thing that can really go wrong is the housing market tanking, which would put pressure on their balance sheets.
Hand says the banks have been flooded with cheap money, for all directions.
"Spending was required in a pandemic but billions of dollars found their way into small and large businesses which did not need support, funded by government debt.
"And now banks can reward their shareholders with healthy dividends and strong balance sheets and Australia is left with structural budget deficits for decades and a trillion dollars of net debt."
The other thing that benefits the banks is the superannuation pool, now over $3 trillion. A lot of that goes into banks, whihc provide high after tax returns, mainly through dividends. So it is captured capital, in a sense.
There is a very low chance of a bank run, or of shareholder desertion. Of course, if there is an international financoal crisis things could be different, but even then the local banks look pretty robust.
Then there is the Reserve Bank's Reserve Funding Facility (TFF), basically some more cheap money. That has also helped the banks, as Hand observes:
"The TFF allowed the banks to compete aggressively for mortgages, especially with the introduction of attractive fixed rates. The big banks in particular benefitted with CBA drawing $51 billion, NAB $32 billion, Westpac $30 billion, ANZ $20 billion and Macquarie $11 billion."
Banks, it seems, are as safe as houses.
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