As regulators guarantee the safety of banks, risks will shift into the non-bank lending domain, writes cjoye.
. A key lesson has been that internet-enabled banking means governments, regulators and banks have to revisit assumptions regarding the stickiness of deposits, which supply 60-80 per cent of all bank funding.
Consider the counter-factual, which was Deutsche Bank. We had told our investors that Credit Suisse would be targeted after Silicon Valley and asserted that hedge funds would then turn their crosshairs to Deutsche Bank. And this is what happened. The difference with Deutsche Bank was that after its equity started to get hammered, the German chancellor came out and signalled that Germany would protect its national champion.
For a decade we claimed – in the face of much opposition – that the big banks should be forced to massively de-lever their balance sheets. The 2014 financial system inquiry agreed, and the major banks were compelled to raise $150 billion of fresh equity capital.
More recently, banks have lobbied APRA to allow them to include relatively illiquid covered bank bonds and RMBS as a liquidity buffer instead of holding government bonds. Last year we engaged with APRA to explain why this was a terrible idea, and the regulator has since made it clear it concurred.
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