Our banking system is like a fragile flower. Building a fund for banks to draw from short term makes sense to me. Below is an excerpt that shows just how fragile and exposed our banks are:
"With actual leverage of roughly 26.5?times, a 4 per cent fall in asset values would, on average, wipe out the major banks’ capital. While the banks are regarded as being durable institutions, it does not take much duress to invoke solvency threats. The Basel Committee’s second finding was that banks should hold more liquidity in the form of high-quality liquid assets to pay out depositors and wholesale bond holders during times of stress.
Almost 60 per cent of Australian banks’ funding comes from deposits. Approximately half of these are at call, the remainder having an average term of six months. The contractual maturity of all deposits is thus less than three months. Almost one-third of other bank funds come from wholesale bonds with an average maturity of about 3.7 years.
Much of this short-term money is used to underwrite 25-year home loans. It is this mismatch between a bank’s assets and its liabilities that’s the source of their fragility."
I have no problem with the CLF position. It looks to guarantee the banks solvency via supplying deposit withdrawals on demand and foreseeing further withdrawals on maturing deposits.
