Tuesday, 24 January 2012

The IMF Has A Peek At Australia

First Moody's waving warning flags and now the IMF. In The Australian, Australian banks should hold more capital: IMF.

A STUDY by the International Monetary Fund is urging Australian banks adopt tougher capital requirements in case of a collapse in the country's property market. (aren't we different here?)

"Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks' capital. Therefore, it would be useful to consider the merits of higher capital requirements for systemically important domestic banks," said the IMF paper made public today.
Banks continue to face concerns from global investors about the prospect for Australia's mortgage market after a broad decline in home prices last year.

According to the IMF paper, the banks' main vulnerability is their exposure to a highly indebted households through residential mortgage lending. Together, Australia's four largest banks hold more than 80 per cent of Australia's mortgages on their books.
Even so, the IMF paper said a stress test of the banking system based on the Irish experience showed banks could withstand "sizeable shocks to their exposure to residential mortgages". 
The IMF is now comparing Australia to Ireland?

The document is embedded below. I love this bit...
“The full recourse nature of mortgage lending also helps limit strategic loan defaults.”
If you are wondering where Crockett and Tubbs fit,  Florida has full recourse loans, a sought after location and people flocking their in droves. They were resilient in the midst of the downturn  right?

Miami's Vice

 Bank Capital Adequacy Australia 2012


  1. Good on the IMF for finally calling things closer to what they really are.

    But, what do we have here? Some people criticising the IMF for doing so!

    This article was in the AFR, but I sourced it elsewhere:

    No need to read the article, this paragraph says it all:
    "No other official connected with the European crisis sounds as alarmist as Lagarde. Her gloomy doomsday prophecies make even usually pessimistic commentators like me look cheerful. The IMF’s predictions now regularly warn of imminent economic armageddon and another 1930s-style depression. Where policymakers usually talk the economy up, Lagarde always talks it down – as if she wants to create a self-fulfilling prophecy."

    Swanny is at it too:

    See, the problem is clearly that we're being realistic in our expectations. Yes, that's the problem. It definitely has nothing to do with a decade or two of excess consumption, credit expansion.

    Gee, status quo or bust much? Far out.

  2. Nice links Pete. I've got a post on our exposure I'll put out tomorrow.