Here are the key things you need to know before you leave work today.
MORTGAGE RATE CHANGES
No changes to borrowing rates today.
DEPOSIT RATE CHANGES
Westpac has upped its 6 month rate to 3.45%, a +25 bps change. NZCU Baywide added +10 bps to their 2 and 3 year rates. NZCU South has added +10 bps to rates for 18 mths, 2 yrs and 3 yrs.
ADEQUATE CAPITAL ?
The current way banks assess the adequacy of their capital buffers has changed a lot over the past decade, driven largely by the BIS Basel benchmarks. These were supposed to inventivise banks to understand their risks better. But in fact, they just allowed them to build models that required less and less capital support, vastly leveraging their capital positions. For example, prior to 2008 business lending was risk weighted 100%, while residential mortgages were risk weighted 50%. Since Basel II, clever modelling by banks themselves has driven the risk weighting of residential mortgages to below 27% (halving the capital needed to support this lending, which was already half 'normal lending'). There is widespread unease among regulators that this self-assessment has gone too far. The RBNZ has announced a review of capital adequacy for NZ banks. Now the unease will turn bank to banks. But we are unlikely to see a return even to the unjustifiably generous 50% rule.
TOP SPOT FILLED
The Co-operative Bank today announced the appointment of David Cunningham as the Bank’s new chief executive, subject to regulatory approval. (He replaces Bruce McLaughlan who now heads up Fisher Funds, which is substantially owned by TSB Bank.) Cunningham has been a member of the Co-op’s senior management team since 2012 in the role of General Manager Customer Banking, and has previously worked in a variety of roles with Westpac.
MILLIONS FOR BILLIONS
Christchurch City Council is to build a $56 mln cruise ship terminal in Lyttleton through its wholly-owned port company. The aim is to attract back large cruise liners to Lyttelton for the first time since the 2011 Christchurch earthquake. The claim is that this tourist industry can inject almost $0.5 blnn annually to the Canterbury economy.
AUSSIE MOVE TO BOOST NZ ?
Australia is reportedly ready to cut funding for their public university system as part of their upcoming Budget. That will undoubtedly means tuition costs in Australia will be going up. It may also end up diverting some international students to New Zealand.
A SOLID GAIN ?
We have another dairy auction on Wednesday morning this week. The derivatives market is holding prices steady today - signaling about a +4% rise in WMP prices.
WHOLESALE RATES SLIP
In a slip that started last Thursday, rates for terms of 2 years and longer are all down yet another -1 bp today. The 90 day bank bill has risen by another +1 bp and is now 1.99%
NZ DOLLAR SLIPS TOO
There has been resumed slippage for the Kiwi dollar again today and it is now down to 68.6 USc. Against the AUD, we are slightly weaker also at 91.7 AUc. Against the EUR we are slightly softer as well and now under 63 euro cents. The TWI-5 is now at 73.3 and that is an eleven month low.
You can now see an animation of this chart. Click on it, or click here.
Daily exchange rates
Select chart tabs
15 Comments
Chinese investment in Australia surged 11.7 percent last year to A$15.4 billion ($11.5 billion) amid booming demand for agricultural assets and infrastructure, according to a report released Monday.
A record 103 deals were signed with Chinese companies in 2016, with 76 percent of those reached with private firms, KPMG and the University of Sydney said in the report “Demystifying Chinese Investment in Australia.”
Australia, with a population of 24 million people and a land mass larger than India, relies on foreign investment to spur growth. While Prime Minister Malcolm Turnbull’s government blocked two key purchases by Chinese companies last year, citing national security, the report shows that the vast majority of deals are approved. Read more
The RBNZ has announced a review of capital adequacy for NZ banks. Now the unease will turn bank to banks. But we are unlikely to see a return even to the unjustifiably generous 50% rule.
Highly unlikely, given large international banks have sought and gained approval around a 10% risk weight factor. Read more
Even those demanding to be in receipt of fabricated mortgage debt seek to contribute a diminishing share of rising residential property purchase prices. Read more
Why do sovereign credit regulators and their captured accountant co-conspirators allow this situation to persist, given money creation itself is an unchallenged redefinition of undischarged bank liability fabrication?
What banks do is to simply reclassify their accounts payable items arising from the act of lending as ‘customer deposits’, and the general public, when receiving payment in the form of a transfer of bank deposits, believes that a form of money had been paid into the bank.
No balance is drawn down to make a payment to the borrower.
The bank does not actually make any money available to the borrower: No transfer of funds from anywhere to the customer or indeed the customer’s account takes place. There is no equal reduction in the balance of another account to defray the borrower. Instead, the bank simply re-classified its liabilities, changing the ‘accounts payable’ obligation arising from the bank loan contract to another liability category called ‘customer deposits’.
While the borrower is given the impression that the bank had transferred money from its capital, reserves or other accounts to the borrower’s account (as indeed major theories of banking, the financial intermediation and fractional reserve theories, erroneously claim), in reality this is not the case. Neither the bank nor the customer deposited any money, nor were any funds from anywhere outside the bank utilised to make the deposit in the borrower’s account. Indeed, there was no depositing of any funds.
The bank’s liability is simply re-named a ‘bank deposit’. .
Banks create money when they grant a loan: they invent a fictitious customer deposit, which the central bank and all users of our monetary system, consider to be ‘money’, indistinguishable from ‘real’ deposits not newly invented by the banks. Thus banks do not just grant credit, they create credit, and simultaneously they create money.
Instead of discharging their liability to pay out loans, the banks merely reclassify their liabilities originating from loan contracts from what should be an ‘accounts payable’ item to ‘customer deposit’ Read more
the banks merely reclassify their liabilities originating from loan contracts from what should be an ‘accounts payable’ item to ‘customer deposit’
It is only when you read such things that you suddenly realise which industry all the brilliant young minds have been getting jobs in the last ten years.
The bank does not actually make any money available to the borrower: No transfer of funds from anywhere to the customer or indeed the customer’s account takes place. There is no equal reduction in the balance of another account to defray the borrower. Instead, the bank simply re-classified its liabilities, changing the ‘accounts payable’ obligation arising from the bank loan contract to another liability category called ‘customer deposits’.
Stephen... You only explain part of the process. At some point the borrower spends the money (credit) that is in his deposit acct.. When that happens , the bank that has created the deposit ( an IOU for money ) , then has to actually honour that IOU.
At that point , the Bank will actually have to discharge its liability thru the payments systems with the RBNZ.
( and it needs "money " to do this.. )
If the Bank is lucky, it may have IOUs' from the counterparty Banks which cancel out its own liabilities (IOUs' )..
Because Credit is fungible with Money ie. we accept credit as money. .... the process seems invisible.
As far as I can tell, intermediation still plays a big role,... particularly with Banks borrowing short term and relending longer term....
Stephen... You only explain part of the process. At some point the borrower spends the money (credit) that is in his deposit acct.. When that happens , the bank that has created the deposit ( an IOU for money ) , then has to actually honour that IOU.
No. The borrower buys an asset with the fabricated credit from a seller who in turn places the sale proceeds on deposit, hence balancing the outstanding borrower debt.
You are wrong stephen... It may appear that way , on the surface of things...
the sales proceeds which the seller places on deposit, is a "claim on money"... It is still an IOU from the initiating Bank.
In a real sense nothing is balanced out until the receiving Bank and the initiating Bank settle their claims thru the payment system.... ie.. there is a transaction between 2 Banks.... (the accts. , of these 2 banks are balanced with "money", from reserve accts. held at the RBNZ ... and not "credit". )
This "settling" of IOUS' requires ..."money".. If a Bank does not have enough money to settle accts.... it borrows it.
think about it... If I write out a chq to you , ... You "cash" the chq by depositing it at your bank...
Your Bank does not "sit on the chq" , thinking that it is "money"... it also "cashs'" the chq by demanding money , thru the payment system , of the initiating bank.....At that point.... the transaction is completed.
What do you mean by money? There is literally none (~$5.9bn ccy in circulation) to settle all the ~$400bn bank creditor claims. The RBNZ has none either, it creates digital credit out of thin air as needed. Even then notes are a claim on the RBNZ which still cannot redeem them for anything tangible, beyond paper and substandard coin.
Money includes the monetary base, which is $13 billion ( $6 billion currency + liabilities to other depository corporations ( settlement accts ) $7 billion ) .... http://www.rbnz.govt.nz/statistics/r3
RBNZ creates "money" not credit..
I do understand that the money the RBNZ creates shows as a liability, AND... in a realistic sense it is just a balance sheet thing... The money the RBNZ creates is not really a claim on anything, and it does come out of thin air...... ( once upon a time it may have been a claim on gold... an IOU on gold )
BUT...yes... the system is highly leveraged.... credit is a claim on money... This leverage is why the system is inherently unstable... Throw on top of that borrowing short and relending long..
I've found that analyzing balance sheet items can be problematic without having an understanding of the nature of what the balance sheet is representing... ( well... for me at least )
there are different expressions for the 2 different forms of money... ie. Central Bank created Money and the Credit money created by the Private banking system.
eg.. inside money vs outside money...
ps.. this leverage is why the system requires never ending credit growth... without which it all crashes... just like an overleveraged property investor..
the saving grace is that Central Banks jump in and "save" the Banks... whereas the Property investor crashes and burns...
eg... The FED and its $4 trillion balance sheet..
I know the terms and worked at a US G-SIB bank for 16 years in London.
Unfortunately, the Fed's balance sheet bank reserves are not levering up fractional reserve lending to the degree hoped for. In fact they remain inert in receipt of IOER.
This USD lending reticence has spread beyond to the global arena, other than that marked for collateralised asset loans. Read more
i struggle to fully understand the USA credit mkts....
Eurodollar mkt seems to play a big part in USA Corporate/multinationals borrowings.. ( It was some of ur comments that pointed me to the eurodollar mkt).... and corporate debt is a big part of private sector debt. ( in contrast to NZ with its household debt )
( Eurodollar mkt may be why total credit in USA exceeds total money supply )
16 yrs in London banking... u must have some great war stories.. :)
Eurodollar mkt seems to play a big part in USA Corporate/multinationals borrowings.
Indeed - as do the derivatives that underpin it's growth or not.
Derivatives are central to the modern wholesale monetary system, and the total of gross notional balance sheet coverage is a very important window into the heart of the system. It tells us a lot about what’s going on in places that can’t otherwise be observed, at least not so directly. Derivative books are risk-taking behavior, and the shrinking of them delivers further striking evidence of global monetary problems that have proved so far intractable because they speak to the very basis of what eurodollars were supposed to be (risk vs. reward). [my emphasis] Read more and more
What was ANZ playing at running a $1,513,547,000,000 notional derivatives trading book primarily underwritten by unsuspecting bank depositors? View details page 21 (22 of 80 PDF)
Adequate Capital? In the last 4 years "deposits and other borrowing" held by the banks increased by about $86B (about 25%), but total local currency liabilities of the Reserve Bank increased by only $2.4B (about 12%). Bank equity capital increased by $7.9B (27%). So over the last 4 years it would seem that banks themselves created $5.5B of the capital they now call equity to support the $86B of incremental deposits.
The ratio of incremental reserve bank currency to incremental deposits being 2.8%.
Concepts like "intermediation" and "fractional reserve" do not seem to be working here.
"Adequate Capital"
A year or two ago, I warned that the banks all over the world were up to their pre GFC tricks and were creatively massaging their risk weightings to bypass the Basel requirements. Pre Christmas, it was as plain on the nose on your face that the reserve bank should have been forcing the banks to divert their huge profits into increase their capital adequacy. Lets hope that the RB does not waste any time and acts decisively. Better late than never.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.