GFC II on its way: Norris
OUTGOING Commonwealth Bank chief executive Ralph Norris has warned
that the European debt crisis has entered a dangerous phase, likening
the current turmoil to the global financial crisis of three years ago.
Mr Norris said global money markets ''effectively froze''
this week as Germany failed to sell the entire stock of €6 billion
($8.2 billion) worth of long-term bonds.
But Mr Norris, who retires next Wednesday after more than six years
in the role, cautioned that credit-crunch conditions were returning,
which is threatening to choke off funding for banks around the world.
''This has potential to be significantly worse than the
Lehman Brothers collapse and the subprime crisis because now we are
talking about nation states,'' Mr Norris told BusinessDay.
''If you have a situation like you had today, where
markets had effectively frozen, then it doesn't matter how good your
name is, you are not going to be able to access markets,'' Mr Norris
said. ''As of today, no banks could access these markets.''
Westpac boss Gail Kelly also expressed fears about the
fragile situation and urged Europe's regulators to get on top of the
crisis.
''What's happening in Europe is a major concern and not
improving. The various authorities in Europe actually have the capacity
to deal with these issues - I certainly wish they'd get on with it and
do it,'' she said.
If the Australian bankers make the wrong decisions,
then we will have a credit squeeze and dangerous asset price fall. Or
putting it another way, Australian bank chief executives are about to
really earn their money and if they fail, they will be put on the
scrapheap.
If funds dry up in Europe, they will dry up elsewhere. And Australian
banks rely on liquid funding markets overseas to run themselves.
If credit markets freeze overseas, so will bank lending in Australia.
That means people won't be able to take out a loan to buy property.
Demand for property will dry up. And property values will disappear. By
that we mean that an asset without demand doesn't really have a price.
It's like a pebble on the beach. Until someone wants to give you money
for it, it's not worth anything.
Australians expecting a housing bubble to pop may have to adjust
their narrative. The straw that breaks this camel's back may be falling
on the other side of the world - in Europe's debt markets.
But it's not just home lending that could disappear. Personal loans usually freeze up first. All this means your business will not be able to get loans, your
children won't be able to get a mortgage and your credit card will stop
working.
When the EFTPOS machine spits out 'insufficient funds', you won't
know whether it means the bank can't afford to pay you or you don't have
any money left in your account.
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