[OPE] The financial system Down Under

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Tue Mar 18 2008 - 13:54:53 EDT

Almost half of all bank assets in New Zealand are now exposed to the housing market, up from just above 40 per cent five years ago before the housing market boom, an analysis of bank disclosure statements by investors' website interest.co.nz shows. This is significantly above the 39 per cent exposure that the same banks have in Australia. "If there is a crash in the housing market - represented by a drop in prices of around 30 per cent - and unemployment rises as well, banks face the risk of being big losers on mortgages and bad debts", said interest.co.nz's managing editor Bernard Hickey today. (...) The total value of bank mortgages has doubled from $74.5 billion in 2003 to $148.3 billion at the end of 2007." http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10498646
New Zealand and Australia remain the only two OECD countries that do not have some form of insurance to protect depositors' cash should their bank go belly up. Deposit insurance has two main functions, to reduce the risk of a bank run during a period of stress for the financial system, and to allow depositors to get access to their cash, or most of it, should their bank fail. The Reserve Bank's view is that it is not clear that deposit insurance is the best way of achieving this. It argues that deposit insurance may actually increase the risk of a bank failure because, depositors secure in the knowledge they won't lose should their bank go under, are not incentivised to monitor their bank's behaviour. http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10498295y.c!
That is the kind of reality you don't grasp if you're just ogling GDP statistics. The double question you then ought to ask is: why are the banks not financing productive business so much, and where does productive business get its finance from?


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