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Senate Notes 5

Posted by on in Bankers A Law Unto Themselves
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Sorry, I stopped typing for Denise's to listen

Australian Centre for Financial Studies – Prof Kevin Davis 

Intro: Wide range of review of the financial sector needed.  It may not be broke, but it could be better.  What is underlying vision for the industry? There is increasingly complex and costing .  Legislation could desing simpler regulations. 

Senate: “ How do you think the current proposals for Basil III fit in “ 

Davis: “Aust cannot go to far from what the rest of the world is doing, so we are stuck with that is a constraint. But we need to ask how they can be best fitted into the Australian sector.  Our banks weren’t heavily involved in the trading sector, but they might be in the future.“

Senate: “  Treasury were saying that the Aust system is going to transistion.  Rubin branch enquiry?  Or wait until Basel III comes in in 2019? 

Davis: “ Financial institutions operate under a range of privileges that the govt has allowed to happen.  The 4 pilliars would constrain this so this should be investigated.  Any enwuiry would have to look at the balance of P& C and what it does to the sector.  There is very little outside of banking outside of superannuation.“ 

Senate: “ Variable loans vs adjustable loans“ 

Davis: “ Variable at bank discretion is from history.  Currently if banks have an increase, they can adjust the rates of all the loans.  Is this right? Should thye be bearing the risk.  Adjustable is better, The bank has a contract with the customer and the banks would be at the risk if their credit rating fell, and they would not be able to pass it on to the customer.  It is their responsibility and should be bourne by the banks as they are also in a better place to cope with it.“ 

Senate: “Who funds ACFSA?“

Davis: “Various, though not for profit org, we beg borrow and steal. I am the research director and point of contact for research. Research for the big banks recently.  One for Abacus recently, a couple of ABA on our committee.  We don’t do contract consulting rather for the public sector.“ 

Senate: “ Get the feeling you are worried about the operation of banks“ 

Davis: “ GFC brought a lot of academics to earth, as the models don’t work.  Size of sector has grown enormously since 80’s.  No question there is a need for rethinking of regulations.  Hard to analyse how a lot of change will impact long term. “ 

Senate: “ Comparing the cost of regulatory programs, would be infinitesimal on the local and global stage of the banking industry. “ 

Davis: “Money can be made by selling products that people don’t understand, and this is the problem.  Certainly true that inadequate supervision had huge impact“

Senate: “Prof Stigler and Prof XX, says there has to be a leveling of the playing field in the industry, rather than too big to fail.  Make banks more transparent and make the banks and CC co’s more competitive, and more difficult to engage in predatory lending, and risk of short term risk lending. 

Davis: “With predatory lending it is clear that our banks are moving towards excesssvely high xx, and not for the benefit of the customers, bank incentives are too high and designed to short term benefits rather than long term stability in the sector.  Fairly well know that financial salaries are very high. Banks have a wide range of associations.“

Senate: “Stiglet about risk taking.  Large banks are risk-loving and attract particular people related to that, large salaries and selection, self risk estimating.  Is this a reasonable assessment for Aust?“

Davis: “For all banks, very true.  The shareholders get the beneifits and tax payers get the risks“

Senate: “MacQuarie bank is only one that is a ‘ring fence’ (?).  Ring Fencing, please explain?“

Davis: “ It segregates the bank from the risk and they can operate as part of a conglomerate with a separate board.  Govt when they bail out banks only bail out that section.“

Senate: “ Bankwest not strong, but the rest are.  Would it be expensive to put this into the banks?“

Davis: “The critical issues are the information systems.  When one part of the bank gets into trouble, it can still go on“

Senate: “GFC because of banks packageing up loans and selling them?“

Davis: “ Yes“

Senate: “Loans for 100%, 12 months time house price goes up rather than down.  Has the banking sector learnt form this? NO“

Davis: “Question is ‘how long did thye learn it for’.  There was a separation from incentives to responsibilities. The orgs who originate the loan must have a skin in the loan.“

Senate: “ Companies must retain the best result for their dhareholders.  The market is flooded with loans, and as banks strive for more are the banks going to be happy with a set profit rate.  Is the market beign flooded with debt.“

Davis: “Late 80’s is not covered enough, second is supervision, third is the banks have to make money for shareholders.  Life Ins co’s must put policy holders first, not shareholders.  Why not the same for banks. Their obligations are much larger as the depositers have a lot more to lose thatn the shareholders.  The directors 1st is to shareholders, so why not legislate to make it more about the depositers.“

Senate: “ What is the likely impact of the Basil III“

Davis: “Next to nothing as our banks are basically there“

Senate: “Canada RMBS“

Davis: “ We should stay away form it because it involves govt guarantee.  Last thing govt should be getting into is guarantees“

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Comments

  • doyla66
    doyla66 Wednesday, 08 August 2012

    Hi STM, you're doing a fantastic job - thankyou.
    Did anyone record Denise's presentation?

  • doyla66
    doyla66 Wednesday, 08 August 2012

    HEY Stop The Madness -THANK YOU!!!!! for effort in getting this all into writing as it happened - AMAZING thanks

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