Dopey, correct. That part has nothing to do with derivatives. I even stated that. Well done!
"'Moreover, Australia's banking system itself is highly dependent on foreign short term funding sources." Really? For what? If the Australian government issues long-term bonds instead of short to medium term bonds in AUD - what happens to Standing Man's GIGA banking model?"
Not sure how the Govt issuing LT bonds affects bank lending policies?
"Australian banks borrow from cheapest capital market source - be it Europe or US and hedge the currency exposure. It is a competitive advantage and financial arbitrage - also known as banking! "
Ah, yes, but then they run into the problem of borrowing short and lending long - that is implied by the article. And hedge the currency exposure, and hedge the interest rate exposure, and so you need to go and look at their derivative exposure and wonder if NAB having $5tn of derivatives can possibly know the safety of all the counterparties in the chain, and wonder why CBA stopped reporting the total value of them after they reached $3tn. For NAB, they have, as stated, $5tn of derivatives and $20bn of retained profits. just imagine if they got them wrong! And they weren't properly covered. Just suppose they lost 25% of the value of their notional derivatives? That'd be $1.25tn, or 62 times their retained profits. Poof goes the bank.
I know, you'll say that's ridiculous, but it isn't. NAB actually lost 25% of the notional value of $17.5bn of US mortgages because they got the deris wrong. $4.2bn it cost, or just over a year's profits.
$5tn of derivatives. They have $808bn of assets, and $761bn of liabilities. So every single dollar, asset and liability, has over $3 of attaching derivatives. LOL, how could this ever possibly go wrong?
