AUSTRALIA'S over-reliance on the big four banks poses systemic and "moral hazard" risks that would require policymakers and regulators to take action.
A new report from the Financial Stability Board -- a Switzerland-based sub-committee of the G20 -- has found that while the Australian banks were in good shape after the global financial crisis, governments should be alert to the lack of competition in the sector.
The study, prepared by world central bankers and major regulators, says there are major structural changes under way in Australia driven by the mining boom and record terms of trade peak.
The banks hold at least $30 billion in direct loans to mining projects. The report warned there was a major investment boom under way that the banks would be exposed to.
It is estimated at least $180bn is being pumped into the Australian economy in the mining sector to cash in on the boom.
There is a growing concern the economy could start to slow if the world economy slips into recession.
"The post-crisis period presents a number of challenges for Australia, particularly in the context of domestic monetary policy tightening combined with relatively high household indebtedness against the backdrop of a fragile global economy," the report said.
"The economy and by extension the financial system is going through a period of structural change in response to the strong demand for commodities from emerging Asian economies.
"As a result Australia's terms of trade is at historic levels and the country is experiencing a commodity-inspired investment surge.
"However, the economy's increased exposure to potentially volatile and cyclical commodity prices warrants particular focus.
"The use of prudential tools may be considered to manage sector-specific risks stemming from the structural changes in the economy."
The report said the government and regulators needed to be aware of the potential for a "too big to fail" type event if one of the majors was ever to hit serious financial trouble.
"The presence of four domestic banks presents . . . important policy challenges for the authorities," it said.
"Their size and nature of activities means that they could pose systemic and moral hazard risks in Australia. The authorities have a supervisory framework in place to address the risks posed by regulated entities through a graduated supervisory response."
Nomura's banking analyst Victor German said banks' earnings could be at risk if the Australian economy slowed and commodity prices crashed.
The top four banks, CBA, Westpac, NAB and ANZ, are on track to earn at least a record $26bn this year.
"The exact balance sheet exposure risks for the banks is small, it's not easy to quantify," he said. "But the big driver for the banks has been the industries that relate to mining. If there was a broader slowdown, then there would be flow on effects and it would be fair to say the banks would be impacted."
A spokeswoman for NAB, said the bank was confident the mining boom would remain buoyant despite the structural challenges it created.
Source: www.theaustralian.com.au
A new report from the Financial Stability Board -- a Switzerland-based sub-committee of the G20 -- has found that while the Australian banks were in good shape after the global financial crisis, governments should be alert to the lack of competition in the sector.
The study, prepared by world central bankers and major regulators, says there are major structural changes under way in Australia driven by the mining boom and record terms of trade peak.
The banks hold at least $30 billion in direct loans to mining projects. The report warned there was a major investment boom under way that the banks would be exposed to.
It is estimated at least $180bn is being pumped into the Australian economy in the mining sector to cash in on the boom.
There is a growing concern the economy could start to slow if the world economy slips into recession.
"The post-crisis period presents a number of challenges for Australia, particularly in the context of domestic monetary policy tightening combined with relatively high household indebtedness against the backdrop of a fragile global economy," the report said.
"The economy and by extension the financial system is going through a period of structural change in response to the strong demand for commodities from emerging Asian economies.
"As a result Australia's terms of trade is at historic levels and the country is experiencing a commodity-inspired investment surge.
"However, the economy's increased exposure to potentially volatile and cyclical commodity prices warrants particular focus.
"The use of prudential tools may be considered to manage sector-specific risks stemming from the structural changes in the economy."
The report said the government and regulators needed to be aware of the potential for a "too big to fail" type event if one of the majors was ever to hit serious financial trouble.
"The presence of four domestic banks presents . . . important policy challenges for the authorities," it said.
"Their size and nature of activities means that they could pose systemic and moral hazard risks in Australia. The authorities have a supervisory framework in place to address the risks posed by regulated entities through a graduated supervisory response."
Nomura's banking analyst Victor German said banks' earnings could be at risk if the Australian economy slowed and commodity prices crashed.
The top four banks, CBA, Westpac, NAB and ANZ, are on track to earn at least a record $26bn this year.
"The exact balance sheet exposure risks for the banks is small, it's not easy to quantify," he said. "But the big driver for the banks has been the industries that relate to mining. If there was a broader slowdown, then there would be flow on effects and it would be fair to say the banks would be impacted."
A spokeswoman for NAB, said the bank was confident the mining boom would remain buoyant despite the structural challenges it created.
Source: www.theaustralian.com.au
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