"The major banks are leveraged about 80 times across their $1 trillion home loan books.
"Put differently, they are only holding about $1.25 of true loss-absorbing capital against every $100 – as opposed to the “risk-weighted” value – of their assets.While banks do not “mark to market” their mortgage books with current prices because they account for them on a “hold to maturity” basis, with such extreme leverage you only need a small drop in asset values to make the banking system theoretically insolvent (assuming market prices)."
He noted a third issue was that the banking system was under tremendous pressure to maintain its internationally lofty returns on equity.
Joye also pointed to "a stunning" 33% of new home loans are being advanced with LVRs greater than 80%.
"In some countries they don’t even allow banks to lend at these levels, period.
rather sobering.. but hey maybe Australia has found the key to ever increasing wealth! lol
