But what happened to all the regulations?
Well when it comes to “Attack Dog” Hayne and the implementation of his seventy six recommendations from the Royal Commission. Lets just say its reminiscent of Paul Keating’s “L-A-W law” quote when he legislated promised tax cuts into “L-A-W law” only to repeal them after the next election instead announcing that the money would be put into superannuation.
The Morrison government has legislated twenty-four of the seventy-six recommendations and claims it has “substantially progressed” thirty-five others. No mention of the other seventeen recommendations that have obviously found their way into a trash can.
However in May 2020 the government cited Corona Virus as the reason that it had again delayed key deadlines for financial services reform…
So how has the Basel Accord panned out? Well as I hinted at earlier their implementation has been pushed out from the original 2013 expectation to now Jan 2022. I doubt we will ever see them implemented…
In fact if you want further support for my thoughts on this one you just need to refer to APRA’s March 2020 announcement where they reversed their rock solid position for the requirement of stronger and more substantial capital buffers to ensure our banks are regarded internationally as unquestionably strong. They were now allowing them to eat into their buffers under the guise of a Covid-19 response.
In reality, the mood for easier credit is upon us and as long as the virus remains a “health crisis and NOT a credit crisis” the banks will most likely sail through completely unscathed, but with less regulation, lower capital requirements and of course more lenient credit assessments policies.
Something else to note is the Morrison governments supportive view of FinTechs and the NanoBanks. Since May 2017 there has been a string of announcements and support packages aimed directly at the establishment and support of the tech sector. Recently the government has announced an $800 million digital technology plan for business as part of the October 2020 budget.
This is important as each cycle needs new entrants. New business models and of course CEO’s that either have never experienced a cycle or now believe that their technology or business model will protect them from any possible future credit crash.
How wrong they will be. Now its time to experience the lending boom from this new tech sector.
To understand just how seriously the government takes all this banking stuff you only need to refer to the new Banking Code Compliance Committee (BCCC) set up in the aftermath of the Financial Services Royal Commission.
The BCCC showed it was a toothless tiger when in late September 2020 it officially sanctioned Bendigo and Adelaide Bank for “systemic breaches of the Banking Code” when it was found to have not acted “fairly and reasonably” over the space of four years.
The BCCC was so upset with these serious breaches that they decided that the bank would face no fines or repercussions but it “named and shamed” them and asked them to promise not to do it again…
Meanwhile back in the USA
The US Credit cycle has been similar, but a little different, so it’s worth spending some time thinking about what happened on Trumps home turf.
Back in July 2010 the banks, who were still licking their financial wounds, were wanting to ensure the security of their few precious remaining assets. Although they adopted more stringent lending standards (that would have saved a bucket of money and a lot of heartache if they had been in place before the crash) it was the rock star President Obama who was really the financial sectors saviour.
See it was on his watch that saw the passing of the Dodd–Frank Wall Street Reform and Consumer Protection Act which amongst other things provided protection to consumers against abuses related to credit cards, mortgages, and other financial products. They went further than that as it also provided an environment that promoted sustainability and stability for the financial sector.
The world was saved. Thank you, Mr Obama.
In America the mood was changing, and the industrious nation of the star-spangled banner wanted to borrow money and buy stuff again. Inevitably what the people want the people get.
The Dodd–Frank Act was considered by many to be the most significant piece of legislation passed during Obama’s presidency. However, most of Barack’s beautifully scripted masterpiece was repealed in June 2017 with the passing of Trumps Financial Choice Act. Then basically whatever regulation was left was washed away in May 2018 with the Economic Growth, Regulatory Relief and Consumer Protection Act paving the way for the US Banking sector to ensure they can again wreak havoc by creating copious amounts of credit that will end in tears once again Circa 2026.
What else could you expect from America while under the rule of a real-estate speculator!
Our story does not quite end there as something else very important happened on March 2020 when the US Fed made a somewhat astounding announcement.
“The Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.” RBA Press Release March 15th 2020
This completely runs against the Basel Accord! Astounding really….
In effect US consumers without any protection from the Frank Dodd Regulations, are again able to trouble the American banks for money. The banks in turn are free to create unvetted amounts of credit for willing banking consumers.
Lets get on with Investing. NOW!
This is how the credit cycle ebbs and flows and how although interest rates can have an effect other factors including
- the size of a bank’s balance sheet
- their statutory reserve requirements
- their appetite for risk and extending credit
- their legislative and consumer protection requirements
all go into determining how much money (credit) a bank will create!
Now is an excellent time to be looking to invest.
The changes in the Australian Government’s position will result in the Aussie banks obliging and becoming more liberal with their lending procedures. It happens every cycle.
Will the boom start tomorrow? I’m not saying that – but it will come.
APRA, by forcing the banks to build their balance sheets and Josh, by telling the banks they can now start to lend “Irresponsibly”, have ensured this will occur.
The scene is set for the second half of the investment cycle. Don’t miss out. If you want some assistance, Calnan Flack and our team would love to help.
Either way – get ready, the fun is about to start.