An open letter to Mike Smith and Lindsay Maxsted

An open letter to Mike Smith and Lindsay Maxsted. Mike Smith and Lindsay Maxsted have recently defended Australia's financial system, suggesting that the Murray Inquiry's focus on bank capital is misplaced and narrow, arguing that the banks are well capitalised by global standards. In an open letter, I draw attention to the fact the rapid growth in mortgage lending since the financial crisis has given the major banks a tremendous assist in terms of suppressing growth of risk weighted assets and their capital requirement. Based on the more robust capital ratio metric of common shareholder equity to total assets, Australia's banks lie well below the global median of 8% and they would need to raise an additional $60 billion to reach that number, the equivalent of over three years of the sector's dividends. I implore Messrs Smith and Maxsted to refrain from propagating myths surrounding bank capital. Because by narrowly promoting the interests of their shareholders, the risk is that the next crisis of confidence will expose the fragile and still under-capitalised domestic banking system. (VIEW LINK)