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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: Sun’s not set on the paradise for white-collar crime

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Sun’s not set on the paradise for white-collar crime

The Australian 12:00am April 16, 2019

Adam Creighton

 

As the drama of the royal commission into financial services fades from memory, it’s clear the winners were not only the major banks, whose share prices have risen about 10 per cent, but their regulators, too.

The corporate watchdog, the Australian Securities & Investments Commission, received another $404 million across four years in the federal budget, and the banking regulator, the Australian Prudential Regulation Authority, another $145m. There was $7m for a new regulator to oversee those two regulators, and a one-off $11.2m for a financial services ­reform implementation taskforce within the Treasury.

The Office of Parliamentary Counsel, which drafts bills, scored an additional $900,000 to cope with an expected thicket of laws.

Scott Morrison in 2016 insisted ASIC and APRA were “tough cops on the beat”.

They weren’t, according to commissioner Kenneth Hayne, yet their “punishment” has turned out to be bigger budgets — the universal goal of bureaucracy.

More money for ASIC is justified, given its remit extends beyond finance, and enforcing the lengthy Corporations Act requires feet on the ground. “On an adjusted basis (in terms of financial ser­vices GDP and financial services population), Hong Kong’s financial regulators are three times the size of Australia’s,” ASIC chairman James Shipton said recently.

APRA, though, more a prudential rule-making than enforcement body, needs a wholesale change in attitude, not more money. It’s slow and its prudential rules are too complex and lenient, especially on the major banks.

Consider APRA chairman Wayne Byres in what presumably was not a joke in a recent speech: “We will be shifting from our past ‘enforcement as a last resort’ approach to one in which we are, in particular, less patient with uncooperative institutions.”

Less patient?

You can bet if someone robbed a bank patience would be in short supply, and enforcement would not be a last resort.

Former ASIC chairman Greg Medcraft in October 2014 memorably described Australia as “a paradise for white-collar crime”. Sounds like it still is.

Too often, APRA appears to act in the banking system’s rather than the public’s interest, making decisions that overwhelmingly support a status quo that richly favours banks, especially big ones.

Last month senior APRA official Pat Brennan said: “Work on building loss-absorbing and recapitalisation capacity to deal with a bank failure or near-failure has been moving on a very different timeline.”

Glacial would best describe it. The financial crisis was in 2008 and the changes are slated for 2022. Even then, the changes will barely make a difference. In ­November, APRA announced it would wind back from 4 per cent to 3.5 per cent a proposed minimum ratio for equity as a share of total assets, and gave banks (which ­already satisfied the absurdly low requirement) until 2022 to ­comply.

And consider the “counter-cyclical capital buffer”, one of an array of ridiculous regulatory tools introduced around the world in the wake of the financial crisis. Regulators, at their discretion, are meant to increase it in a boom, requiring banks to maintain a little bit more equity.

Guess how APRA set it in 2016, when the housing market was so obviously booming? Zero. In 2017? Zero. Last year? Zero. And last week: “APRA has announced its decision to keep the counter-cyclical capital buffer for authorised ­deposit-taking institutions on hold at zero per cent”.

Even batty US Democrat congresswoman Alexandria Ocasio-Cortez, a darling of the Left, understands.

“It’s an almost universally acknowledged economic practice that at times where the economy is surging, at least according to overall GDP, that we should be shoring up our capital buffers. Otherwise, in a downturn we won’t be as prepared,” she told reporters in Washington, DC last week.

A chart showing the big four banks’ equity as a share of their assets, probably the best single catch-all indicator of their ­resilience, has been as flat as the Nullarbor Plain for more than a decade.

For all the hot air about tough requirements, equity as a share of bank total (unweighted) assets has inched up from a meagre 4.5 per cent to about 5.5 per cent since 2010, far short of the level logic and evidence overwhelmingly dictate to be prudent, which, on this measure, is thought to be closer to 10 per cent.

Bank management and shareholders overwhelmingly prefer debt to equity because, whatever the government says, banks’ deposits and other borrowings are guaranteed free of charge, which dramatically reduces the cost of doing business.

And APRA’s prudential rules allow the big four banks to maintain lower equity ratios than their smaller competitors.

“The major banks’ sheer size gives them enough advantages. They should not be getting extra help from the regulatory framework,” says Customer Owned Banking Association chief executive Michael Lawrence.

“APRA took an interim step back in 2016 to tackle this problem, but further action is needed.”

I won’t be holding my breath.

Far from being lower, minimum equity ratios should be much higher for big banks, to encourage them to downsize.

Around the world, dominant banks have not only become too big to fail but also too big to manage, as the royal commission here starkly illustrated.

APRA isn’t alone in its timidity, though. The Federal Reserve, which regulates US banks, also set the buffer at zero last month, despite a booming economy. Bank regulators globally deserve top marks for amassing more taxpayer resources but low marks on making substantive changes.

There is hope, though. In a brave move, the Reserve Bank of New Zealand recently announced significant increases in minimum equity levels for its largest banks (which are owned by Australia’s big four).

“Up to relatively high levels of capital, the benefits of increasing capital are expected to outweigh the costs,” the RBNZ says “In this case, it makes sense to target higher capital because doing so increases stability and expected output (as the likelihood of banking crises fall).”

Good rules don’t cost a cent more than bad ones. But they need public servants with the confidence and integrity to design and enforce them.

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