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  1. #1
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    Default Bank Financial Strength Dashboard

    https://bankdashboard.rbnz.govt.nz/summary

    Trying to work out the safest bank in the event of a bank bail-in, but getting blinded by the figures.
    To me they all look susceptible in a crash.?

  2. #2
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    Quote Originally Posted by Blue Horseshoe View Post
    https://bankdashboard.rbnz.govt.nz/summary

    Trying to work out the safest bank in the event of a bank bail-in, but getting blinded by the figures.
    To me they all look susceptible in a crash.?
    A crash in what?
    Liquidity,house prices,businesses,farm prices?
    Never mind,in 10 years any 'crash' will be a mere blip.

  3. #3
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    The big four Australian banks deal in derivatives which pose a huge risk as this article on derivative risks in the Australian banking system points out. One of the causes of the 2008 financial crisis was that no one knew what was in the derivatives. Derivatives were one of the primary causes of the subprime mortgage crisis. Hedge funds use of derivatives added risk to the global economy, setting the stage for the financial crisis of 2008. Fund managers bought credit default swaps to hedge potential losses from subprime mortgage-backed securities. Insurance companies like AIG promised to pay off if the subprime mortgages defaulted.

    http://digitalfinanceanalytics.com/b...anking-system/

    And this is the point, banks who play in the derivatives area actually have additional risks in their business, which are not knowable, but potentially large. In a crisis, it risks the rest of the business. There is no ring fence.

    The bottom line is $37 trillion is a good representation of the current gross exposures in the Australian banking system, and this dwarfs the banks’ current balance sheets, and the country’s total economy. The risks are literally enormous, and in a system-wide banking crash, when multiple parties are exposed, a bail-out if required would likely have profound economic effects. Most of these derivatives are in one way or another bets on their mortgage lending. Australia’s GDP is just shy of $2 trillion. These contracts are held “off balance sheet”. Australia would be about 6% of the global derivative total.
    Last edited by moka; 04-01-2019 at 08:02 AM. Reason: spelling

  4. #4
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    The bubble of derivatives speculation is extremely complex, involving millions of contracts interlinking banks all over the world. What a bank is owed on derivatives contracts by its counterparties is contingent on many other banks in the daisy chain being able to honour all of their obligations; if one of those banks fails, as Lehman Brothers did in 2008, the daisy chain of obligations can explode and the entire derivatives trade can melt down. And when it does, it is not the “netted” figure that banks have to pay, but the full, so-called “notional principal” liability in the derivatives contract. For this reason there have been numerous derivatives disasters in recent history which have wiped out entire banks and whole chunks of the financial system, including Barings Brothers in 1995, Long Term Capital Management in 1998, and of course Lehman Brothers in 2008.
    http://cecaust.com.au/releases/2017_...ive_Banks.html
    Last edited by moka; 04-01-2019 at 08:43 AM.

  5. #5
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    http://cecaust.com.au/releases/2018_..._Bankrupt.html
    Some people are asking if Australia’s Big Four banks are effectively bankrupt.
    This scam allows the banks to claim that only a quarter of their mortgages carry risk, and only hold capital against those mortgages, not all of them. The actual capital of the Big Four banks is razor thin, less than 6 per cent, meaning their leverage of loans to capital is 19 times. Given that the collateral for 63 per cent of this lending is overpriced housing, an across-the-board real estate market slide of just 10 per cent would wipe out collateral equal to the banks’ capital. Australian house prices have already fallen 4.6 per cent in the last year, and informed observers are anticipating falls of 30 per cent and more.

    Australian banks have the highest exposure to housing of any banks in the world by far. The nature of denials by the government, regulators, banks and real estate industry is eerily identical to Ireland before its crash in 2008. Banks are entirely dependent on all borrowers continuing to make their mortgage payments, except that Australian households are on the edge, suffocating under the highest household debt in the world with no capacity to absorb the interest rate rises that have already started.

    https://www.abc.net.au/news/2018-10-...-2007/10343364
    Australian housing, the economic parallels with Ireland and the risk of a housing crash.

  6. #6
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    Sounds like a lot of fear mongering. The derivative market in banks is nothing like in the GFC / 2008 era. Are you saying within 10 years banks are going to fall for the same mistake, let alone Australian banks? The Aus/NZ banks were least hit ; why? because Aus & (thus NZ banks) are far more regulated. This is the same argument with Canadian banks. Not a single Cdn bank (that I recall) went bankrupt during the GFC.

    What i'm saying is the rules have changed. Just like the insurance companies after the Chch earthquakes simply stopped taking on new insurance policies.

    Wouldn't the state of the economy such as level of employment be the better indicator of the housing market?

  7. #7
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    Quote Originally Posted by SBQ View Post
    Sounds like a lot of fear mongering. The derivative market in banks is nothing like in the GFC / 2008 era. Are you saying within 10 years banks are going to fall for the same mistake, let alone Australian banks? The Aus/NZ banks were least hit ; why? because Aus & (thus NZ banks) are far more regulated. This is the same argument with Canadian banks. Not a single Cdn bank (that I recall) went bankrupt during the GFC.

    What i'm saying is the rules have changed. Just like the insurance companies after the Chch earthquakes simply stopped taking on new insurance policies.

    Wouldn't the state of the economy such as level of employment be the better indicator of the housing market?
    I don’t see it as fear mongering. I see it as assessing the risks. It is just some people’s opinions about what could happen.

    https://thewest.com.au/business/fina...-ng-b88471685z
    Pro-bank commentators seem to have forgotten how in those dark days credit markets dried up as the world wondered whether capitalism as we knew it was ending. Critically, the world’s financial lubricant — US dollars — disappeared.
    Contrary to popular belief, Australian banks did not sail through the GFC. Reserve Bank data showed they collectively received $US18 billion in bailout liquidity. The mechanism was put in place after the collapse of Lehman Brothers in 2008.

  8. #8
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    I am no economist so am still discovering the links that exist between entities. Bonds are debt instruments which companies use instead of banks. What effect does a banking slide or credit crunch have on corporate bonds? Are companies with bond issues likely to have large bank borrowings as well? I'm thinking especially of the property sector ARG KPG GMT etc.

  9. #9
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    I'm not sure if HGH or TSB have much exposures to the derivatives market but they would appear safer than the Big Aussie 4...maybe Kiwibank as well.

  10. #10
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    I found this article headed "Winner Takes All: The Super-priority Status of Derivatives," which I was not aware of. Derivatives have “super-priority” status in bankruptcy of a bank.

    Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles.
    https://www.huffingtonpost.com/ellen...b_3054522.html

  11. #11
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    I checked to see what is happening in NZ re derivatives to have priority ahead of other creditors in the event of a default of a bank.
    According to the MBIE website amendments are being drafted which will mean that derivatives counter parties will be able to enforce their security interest over margin without delay, and ahead of other creditors, in the event of the other party to the derivative defaulting.

    Foreign margin requirements for OTC derivatives. - Legislative amendments are being drafted to address aspects of New Zealand law which impede compliance with foreign margin requirements for over-the-counter derivatives.

    https://www.mbie.govt.nz/business-an...c-derivatives/

    In July 2017 the Reserve Bank and the Ministry of Business, Innovation and Employment (MBIE) sought feedback from the public and stakeholders on the implications for New Zealand of foreign margin requirements for uncleared over-the-counter (OTC) derivatives.

    https://www.rbnz.govt.nz/regulation-and-supervision/banks/consultations-and-policy-initiatives/active-policy-development/foreign-margin-requirements-for-otc-derivatives

    I can’t find what has happened to these amendments, but by googling I found a link to a MBIE PDF Cabinet paper (not dated) which said:
    The proposed legislative amendments will effectively give priority to derivative creditors in the event that a bank or other covered entity (eg ACC) became insolvent. This means derivative creditors will be able to enforce their security interests immediately and before other, non-derivative creditors.

    Cabinet paper - A New Zealand policy response to foreign ... - MBIE


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