why oz banks borrow money from foreign banks?, page-13

JANTIMOT.

Hi.

Aus banks already are Basel III compliant. They only need to keep under 5% but are all over 8% so no probs there.

What Basel II has done which was introduced into Aus 1st Jan 2008 is created Financial Racism and a few extra anomalies that have not played out yet.

A.Financial Racism:
They have different leverage ratios for different assets now where before it was a flat ratio. Therefore, they can pick n chooses the assets that they would lend to.

EG if they had $10K reserve and could create $40K for product A or $70K for product B and receive the same interest, which product would they choose. You got it. B.
They also look at the lenders financial position now. Before if there were 2 couples that say were under the 33% gross payments of income they would both qualify for a home loan. Now under Basel II if one couple are at 32% they would probably be told no and hope that they go to another lender that will take their business and instead try and attract the 25% of gross income couples as they are less risk on the balance sheets and they are able to create more funny money from their TIER reserves. Commercial clients are also offered cheaper rates if their cashflow and LVR is great because the lenders need less TIER reserves to create money for them.


B. Basel II is also designed to Contract lending when times are slow and to expand lending when the economy starts picking up. Now under this scenario ,I believe that the next bubble will be the largest in History if we ever get out of this rut induced and prolonged by Basel II world wide.


Therefore we now have banks picking and choosing the best clients because they can create money cheaply where as before there was a flat ratio for leverage.

We also have APRA putting their nose in there and Fing around with more legislation when they don't even understand what Basel II and soon Basel III has done the idiots.