IMF: Bank capital needs to be ‘substantially higher’ to prevent banking crisis

The International Monetary Fund has warned Australia’s big banks don’t appear to be well capitalised and increasing capital should be a priority.

The warning comes in the concluding statement following the article IV mission to Australia this month. (‘International Monetary Fund team to examine housing bubble – May 2, 2015‘)

It reports Australia’s banking watchdog, APRA, has been taking the appropriate targeted and gradual action towards risks in Australia’s hot housing market for some time (‘Property bubble a Macroprudential challenge for regulators – Oct 27th, 2014‘, ‘Woof – The watchdogs have a bark! – Dec 9th, 2014, APRA to keep banking crackdown secret – March 26, 2015‘).

While the IMF is confident APRA will reap the desired results, it notes the banks have been stubborn and have only recently started to act, hence tangible results to date has been hard to see in even the most recent lending data. (‘Sydney value agnostic investor bubble shows no sign of abatement – June 14, 2015‘)

“We expect APRA’s approach to succeed, but it may need to be intensified, for example, if investor lending and house price growth do not slow appreciably in the second half of the year. Such intensification could include requiring banks with fast-growing investor lending to hold more capital, raising risk weights on investor lending, and restricting the duration of interest-only loans.”

The report notes, Australia’s banking system “is dominated by four large banks with similar business models which rely significantly on wholesale external borrowing, most lending is housing related, and household debt and house prices are elevated. And although capital ratios have risen since the global financial crisis, this largely reflects a shift towards mortgages and a lowering of risk weights.” (‘Australian banks not the safest in the world – far from it – December 8th, 2014‘)

“More tangibly, the recent APRA stress test (‘Have the Big 4 just flunked APRA’s stress test? – November 16th 2014‘) indicates that in a severe adverse scenario, bank capital would have to be substantially higher to ensure a fully-functioning system. Putting a floor of 25-30 percent on mortgage risk weights would help, but capital ratios would also need to rise substantially. Given major banks’ high profitability, such ratios can be achieved at little, if any, macroeconomic cost, especially if done gradually, and will make the financial system, the budget, and the economy stronger.”

In recent weeks there has been heightened awareness of Australia’s currently unprecedented housing bubble.

» Australia: Concluding Statement of the 2015 Article IV Mission – International Monetary Fund, 24th June 2015.


  1. And probably far too late to raise enough capital to save the banking system this late in the piece.

  2. So the questions remains; Which banks will be nationalised and which will go under?

    My guess:
    CBA nationalised (this is the biggest of the TBTF)

  3. Heeeey – wait a cotton pickin’ minute… Aren’t we supposed to be spending spending spending? because savin’ savin’ savin’ is not what Sloppy Hoe’s been advocating at all.

    Isn’t that what the RBA’s been trying to prevent us doing – hoarding of cash? errr.. I mean “saving”?

    Hmm – someone’s speaking with a forked tongue…

  4. Trans Pacific Partnership Inked.The singing of the free trade deal between China and Australia june 17.Which covers services relating to the environment,construction and engineering,tourism and travel,securities and education – no form of quota,regulatory imposed monopoly or exclusive service arrangement will be imposed AND FIRMS WILL BE FREE TO OPERATE IN EACH OTHER’S MARKETS WITHOUT ANY LIMITATION ON THE VALUE OR QUANTITY OF SERVICES PROVIDED.There will be no limit on the amount of capital Chinese firms can invest within Australia!

  5. Its all window dressing by the IMF as everybody knows the bank depositors guarantee is totally underfunded anyway. When the housing market implodes and the banks demand more welfare Mme Lagarde will say we warned your government and they did nothing so Australian taxpayers pay up. Greece is just the practice run to control countries with debt and asset strip them. The big 4 are already owned and controlled by offshore banking cartels with bigger combined turnovers than our GDP, so don’t expect any free gifts.

  6. I would expect to see either Westpac or the Commonwealth be nationalised. Westpac was our most riskiest bank until they raised capital through the dividend investment plan and the sale of BT.

    The Australian had an article yesterday
    CBA chief Ian Narev puts faith in capital clout
    suggesting it was now the Commonwealth bank that had the lowest risk ratings on it’s mortgage books, CBA was 15%, WBC 16%, ANZ 17% and NAB 18%.

  7. Hands up all those who believe the banks and the government are telling us the truth.

    Yeah, I didn’t think so. I watched a news item on Cyprus when it went under and one businessman went to his bank two weeks before the collapse as asked whether there was a problem and should be pull his funds from the bank. The Bank Manager told him his savings were safe and two weeks later he lost 2 million euro.

    I don’t believe there’ll be any nationalisation of the banks just a bailing out with our tax dollars and no charges laid against any of the cretins running the banks. Just like in the US. Too big to fail.

    My problem is where to put my savings. I don’t want to suffer because a bunch of greedy investors and ministers didn’t use their brains and brought everything crashing down.

  8. Kiss your country goodbye aussies. You’ve been sold out. You didn’t even need a foreign army to step foot on your soil.

  9. @10 Nigel

    A wise man once said central banks are more dangerous to civil liberties than standing armies…. How true

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