How to rein in big bad banks

Christopher Joye

Coolabah Capital

In The AFR I argue that regulators should opt for simple, transparent and tough rules when dealing with bankers, who will systematically outsmart them given the opportunity to do so in view of their superior financial incentives and human capital. In the case of Australia's systematically important banks---namely the four majors and Macquarie---I back former Bank of England governor Mervyn King's proposal to place a still-generous ceiling on maximum allowable leverage at 15 times the banks' equity. This translates into a minimum leverage ratio of around 6.6 times, which would also put our banks in the top quartile of global peers in terms of non-risk-weighted capital. King further contends that complex "risk-weighting" regimes are of limited value, and I explain why. Finally, I argue that if APRA is to credibly deliver on the government's instruction that it minimises implicit taxpayer guarantees and the perception some banks are too-big-to-fail (TBTF), it will have little choice but to explicitly communicate that the major banks' senior bonds are loss-absorbing as most regulators overseas have done since the GFC. Free (VIEW LINK)


3 topics

1 stock mentioned

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.