Budget bank levy: too big to fail, not too big to take a hit


Kevin Davis, Australian Centre for Financial Studies

The budget announcement of a 0.06% levy on a subset of bank liabilities looks arbitrary, and is certainly politically opportunistic. But it could be rationalised as a response, albeit probably not the best response, to offsetting a number of distortions in Australia’s banking market. The Conversation

The levy will certainly have consequences for bank pricing, forms of funding and competition – and will interact in complex ways with other prudential regulatory changes in the pipeline.

The levy will affect the four major banks and Macquarie. It will apply to liabilities other than deposits protected by the Financial Claims Scheme (ie. under A$250,000) and additional Tier 1 capital instruments.

As a ballpark estimate, it will apply to around 50% of a bank’s total funding, raising the overall cost of funding for the affected banks by around 0.03%.

The large banks are perceived to receive a competitive benefit (lower borrowing costs) from an implicit government guarantee associated with being “too big to fail”. On this basis, the levy could be seen as a charge for that benefit.

As it is in Europe, Australia could establish a “resolution fund” to enable the Australian Prudential Regulation Authority (APRA) to facilitate a smooth exit (ie by merger) of a failing bank. Although this levy is going to be set aside by the government for budget repair, rather than being set up in another separate fund, it could be argued that it strengthens the government to support APRA in regulating the banks.

The nature of the regulatory system (such as capital adequacy requirements) creates a competitive imbalance favouring the big four banks. The imposition of higher minimum capital requirements for mortgage loans by banks (five banks were actually subject to this levy) was only a partial response to this imbalance.

It’s often argued Australian banks have relied too much on funding, other than “core/stable” deposits and capital, with potential consequences for safety and systemic stability. Indeed, the large banks have funded their increased share of home mortgage lending since the global financial crisis to a significant degree from wholesale borrowings.

However there are better ways of dealing with these perceived distortions than the government’s quick, politically opportunistic, measure. And, together with other bank accountability measures introduced in the budget, it may neutralise whatever support exists for a Banking royal commission.

The levy is likely to have a number of significant effects on financial markets and consumers of financial services. The levy will flow through the banks’ funds transfer pricing systems to affect loan pricing.

In this regard it is somewhat silly to simultaneously suggest that the big banks shouldn’t increase loan interest rates, as the Treasurer has, but that the measure will improve the competitive position of smaller banks. The latter will only happen if the large banks do respond in that way!

The large banks will have incentives to fund loans differently. In particular, by originating and then securitising loans (pooling various types of contractual debt, to get them off-balance sheet and funded by the capital market) they will avoid the levy on that part of their activities.

However, that benefit won’t apply if they use “covered bond” securitisation. This is when debt securities are issued by a bank and collateralised against a pool of assets, giving the investor a claim against both those assets and the bank in general. The levy is thus likely to give a kick to traditional securitisation over on-balance-sheet lending, but stymie the growth of covered bond funding.

The levy will also affect the structure of bank deposit interest rates. Because retail deposits are exempt from the levy, the large banks can be expected to bid for these deposits – pushing up the interest rates offered relative to the cost of borrowing in wholesale and large deposit markets.

That’s going to compound the already apparent effect on relative interest rates due to recent and forthcoming liquidity regulations being applied by APRA. But it will worsen the relative returns that superannuation funds can get on (their large) bank deposits and possibly induce them to look towards investing more in securitised products.

It’s also worth noting that the budget involves changes which will increase competition for retail deposits. One example is the measure allowing individuals to make limited, tax advantaged, contributions to superannuation which can be subsequently withdrawn for a house deposit.

A further likely effect is to encourage banks to make more use of equity capital and additional Tier 1 (AT1) capital funding (that preferences share structures listed on the ASX and held by many retail investors), relative to Tier 2 capital funding (provided by the wholesale and institutional markets), or other wholesale funding. While more capital funding is still required to meet the “unquestionably strong” criteria proposed by the Murray inquiry, and accepted by the government, it’s far from clear that increased reliance on the complex AT1 is a desirable outcome.

The revenue to be raised is large in absolute dollar amount – but is relatively small as a percentage of current bank profits (in the order of 4-5%).

It could be expected that some part of the levy will be passed on to customers, or avoided by the banks shifting to other forms of funding which do not incur the levy, such that the short run direct impact on after tax profits and shareholders is somewhat less than that 4-5% figure.

But the big unknown is how the change, in conjunction with a plethora of other ongoing regulatory changes affecting the financial sector, affects the competitive balance between the big banks, smaller bank competitors and capital markets and their prospects in the long run.


This piece was co-published with Pursuit.

Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies

This article was originally published on The Conversation. Read the original article.

Australian IT Costs More – 50% More!!!


The link below is to an article that should have Aussies seeing red – we are paying up to 50% more than we should be for IT products, which is of little real surprise to most of us. Right across the board we have been paying more and there seems to be no real reason for it to be so other than the greed of big business.

For more visit:
http://www.theaustralian.com.au/australian-it/personal-tech/australians-pay-50-per-cent-more-for-tech-goods/story-e6frgazf-1226687429151

Cricket: Australia – Australia Defeat India 4 Zip and the Big Bash 2012 Final


What a great day for Australian Cricket, with Australia wrapping up the test series against India 4 – 0 and the hugely successful 1st season of the Twenty20 Big Bash being completed tonight, with the Sydney Sixers defeating the Perth Scorchers.

It has been a massive day of cricket, with Michael Clarke, Ricky Ponting, David Warner, Peter Siddle and Co, playing great cricket in the series win against India. Who will forget the massive triple century of Michael Clarke, the partnerships of Clarke and Ponting, the dominance of Australia’s bowling attack and the capitulation of the Indian team under relentless pressure from Australia. Both Shaun Marsh and Brad Haddin should be concerned about their immediate future in the team, with poor performances by them both throughout the series. Both Ponting and Michael Hussey silenced their critics with very solid performances in the series and David Warner has cemented his place in the team for the time being.

India however were very disappointing and several big name players should be looking at retirement – if not, they should perhaps be replaced. All the big names struggled, none more than Dravid and Laxman. Even Sachin Tendulkar struggled and at no time did it seem likely he would make his 100th international hundred.

The Big Bash Final win for the Sydney Sixers was set up right from the beginning with a brilliant first over by Brett Lee. It was a brilliant opening partnership between Moses Henriques and Steve O’Keefe that ensured the Sixers could chase down the total set by the Scorchers comfortably.

For more visit:
http://www.cricket.com.au/news-list/2012/1/28/australia-seal-whitewash

http://www.bigbash.com.au/
http://www.espncricinfo.com/big-bash-league-2011/content/story/551379.html

Plinky Prompt: What I’ll Remember Most About 2011


View from the Grand High Tops

This is a difficult question to answer – because there has not really been any ‘big’ events or happenings in my life this year (that I can remember anyway). I must lead a really boring life – which is probably true.

I guess the thing I will most remember, for the next little while anyway, will be the last month of the year. I have been on vacation from work for the entire month of December and have had a great time travelling around the state – well northern NSW anyhow. It has been just the break I have needed and will perhaps save my sanity for a bit.

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Hindu Extremists in India Beat Pastor Unconscious


Evangelist was traveling with sons from one village to another.

NEW DELHI, April 22 (CDN) — Hindu extremists beat a pastor and evangelist unconscious in front of his sons earlier this month in Madhya Pradesh state.

Ramesh Devda, 30, from Dhadhniya, Meghnagar district, said he was attacked on April 4 at about 11 a.m. after leading a prayer meeting in Chikklia village. He said he was on his way to Bhajidongra, at the border of Madhya Pradesh and Gujarat states, by motorcycle with his two sons, 10-year-old Elias, and 8-year-old Shimon, to lead another prayer meeting.

When he reached Raseda village, he said, suddenly three people on two motorcycles blocked his way and forced him to stop.

“Suddenly out of nowhere these three men appeared in two motorcycles – they blocked me and tilted my motorcycle,” Pastor Devda told Compass. “We fell down. They were carrying big bamboo sticks and clubs. They started beating me, and then they called and three more men came and started to attack me.”

He said he was thankful that his sons were spared from beating, though his older son sustained a leg injury in the course of the attack.

“They were angry at me and were threatening to kill me and were warning me not to come to their area again,” he said. “My sons were screaming at the top of their voices, and they were afraid. One of the men hit me on my forehead with a big bamboo stick, cracking my skull. The others were also beating me on my body, especially my back with bamboo sticks.”

A blow to the forehead temporarily blinded him, he said.

“My eyes were darkened, and I fell down, and they proceeded to beat me even more,” he said. “The men were also abusive in the foulest language that I had heard, and they were drunk.”

People passing by heard the two boys crying out and came to help, and the attackers fled, he said, leaving the unconscious pastor and his sons.

“I do not know who helped me, as I was unconscious,” Pastor Devda said. “But I came to know later that local Christians also came in and called the emergency helpline. As a result, an ambulance came, which then took me to the hospital.”

He was taken to Anita Surgical Hospital on Station Road in Dahod, Gujarat. There a physician identified only as Dr. Bharpoda told him that he had fractured his skull.

“I am being treated for my wounds now, but there is still a lot of pain,” Pastor Devda said.

A Christian for 15 years, Pastor Devda has been in Christian leadership for 11 years and now serves with the Christian Reformed Fellowship of India. He has two other children, Ashish and 4-year-old Sakina, and his wife Lalita, 28, is active with him in Christian service.

Pastor Devda leads congregations in Chikklia, Bhajidongra and Dhadhniya villages.

“I have heard that I was attacked because the people of Chikklia did not like me conducting the Sunday service there,” he said. “The people who beat me up do belong to a Hindu fundamentalist outfit, and some believers in Chikklia know them. I can recognize them if I see them again.”

He said, however, that he does not want to file a First Information Report (FIR) with police.

“There is no one supporting me or standing with me in my village or my mission, and I am myself fearful, as I have to continue to minister to these very people,” Pastor Devda said. “I know my attack was pre-planned, but I do not want to report it to the police.”

A Christian co-worker from Rajasthan was also attacked about a month ago in equally brutal fashion, he said, but also refrained from filing an FIR because of fear of repercussions.

Vijayesh Lal, secretary of the Evangelical Fellowship of India’s Religious Liberty Commission, said the tribal belt that extends to the border areas of Madhya Pradesh, Gujarat and Rajasthan, has been a hot spot for anti-Christian activity since the late 1990s.

“Only recently a 65-year-old evangelist was beaten and stripped by Hindu extremists,” he said. “It is a worrisome trend, and one that should be dealt with not only by the government but by the secular media and civil society in general.”

Report from Compass Direct News
http://www.compassdirect.org

Plinky Prompt: My Favorite Celebrity


Bourne Ultimatum

Who is my favorite celeb? Now there’s a question. Now to answer this I’m thinking of my favorite current movies. My favorite movies at the moment are the Jason Bourne movies – they have been for a while. So with that in mind I’ll have to say Matt Damon.

Having commented above, I have to say I know nothing about Matt Damon, so my thoughts relate simply to the movies and his performance in them. I’m also a fan of Mel Gibson in Braveheart and The Patriot, Russel Crowe in Master and Commander, Julia Roberts in Notting Hill, etc – but their lifestyles are not big on my ‘like’ list. It is simply about their performances as actors and actresses, and that is all.

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Christians suffer in Iran’s ‘free nation,’ says Open Doors USA


Iran’s president claimed his country is a genuine cradle of liberty. President Mahmoud Ahmadinejad is in New York for the annual meeting of the UN General Assembly, reports MNN.

Ahmadinejad insisted that political opponents are free to demonstrate, refusing to acknowledge that opposition groups and Christians have been driven underground by a vicious government crackdown.

"When we discuss the subject of freedoms and liberty it has to be done on a comparative basis and to keep in mind that democracy, at the end of the day, means the rule of the majority, so the minority cannot rule," Ahmadinejad said.

President of Open Doors USA Carl Moeller says, "Any person that’s had any exposure to the realities of life in Iran would disagree with President Ahmadinejad."

Moeller says Ahmadinejad is the master of the big lie. "He’s a holocaust denier, for example. And it’s easy to deny something as long as you don’t have to [back it up with] evidence. In this case, it’s easy to say Iran is a free country because everybody who would dissent knows clearly that if they dissent, they would be sent to prison."

Iran is one of the most repressive places to be a Christian. It ranks second on Open Doors’ World Watch list of countries which persecute Christians. "We’ve talked, on this program, about those who have spent months in prison simply for converting to Christianity and suffered huge abuse because of it," says Moeller.

Despite this oppression, Moeller says many Iranians are turning to Christ. They’re responding to Christian radio and satellite television broadcasts. Some are reading about Christ on the Internet. Some young people are starting churches as a result.

Moeller says most Iranians are aware of it. "90 percent of Iranians are aware that Muslims are turning to faith in Jesus Christ and have first-hand knowledge of that. It’s an incredible statistic. And we see that the increase in persecution is a direct relationship with the growth of the church in Iran."

Report from the Christian Telegraph

Alleged Bomber of Christian Boy in Israel to Stand Trial


Hearing could determine whether Jack Teitel is transferred from mental hospital.

ISTANBUL, September 3 (CDN) — An Israeli man accused of planting a homemade bomb that almost killed the son of a Messianic Jewish pastor in Ariel, Israel has been declared competent to stand trial.

Jack Teitel, 37, who in November was indicted on two charges of pre-meditated murder, three charges of attempted murder and numerous weapons charges, is expected to enter a plea on Sunday (Sept. 5).

David and Leah Ortiz, parents of the teenage victim, said that the 10 months since the indictment have been difficult but their stance toward Teitel remains the same; they have forgiven him for the attack but want him to face justice before a judge and seek salvation from God.

If nothing else, they said, they want him incarcerated to keep other Messianic Jews from being attacked either by Teitel or those following his lead.

“He’s dangerous,” Leah Ortiz said. “He’s an extremely dangerous person. He’s totally unrepentant.”

Sunday’s plea will open the way for a trial expected to start within weeks and last for more than six months. Officials at a hearing possibly the same day as the scheduled plea will decide whether Teitel will be moved from the mental hospital where he has been held for most of his detainment.

It is possible Teitel will enter no plea on Sunday. He has publically stated that he doesn’t “recognize the jurisdiction” of Jerusalem District Court.

 

Bombing

On March 20, 2008, Ami Ortiz, then 15, opened a gift basket that someone had left anonymously at his family’s home in Ariel. The basket disappeared in a massive explosion that destroyed much of the Ortiz home and shattered Ami’s body.

When he arrived at the hospital, Ami was clinging to life. He was bleeding profusely, had burns covering much of his body and was full of needles, screws and glass fragments the bomb-maker had built into the device.

The doctors had little hope for him and listed his condition as “anush,” meaning his soul was about to leave his body.

After countless hours of surgery and even more spent in prayer, Ami went from “near dead,” to burned and blind and eventually to playing basketball on a national youth team. Both his parents said his recovery was nothing short of a miracle from God.

 

‘Most Radical Evangelist’

When Teitel was arrested in October 2009, police found him hanging up posters celebrating the shooting of two teenagers at a gay and lesbian community center in Tel Aviv.

Teitel’s background is still somewhat of a mystery. An emigrant from the United States, he became an Israeli citizen in 2000, got married not long afterwards and is the father of four children. Usually portrayed in Israeli media as part ultra-orthodox ideologue and part fringe survivalist, it is clear that Teitel was motivated by a fascination with end-times prophecy and an extremely violent interpretation of Judaism and Jewish nationalism.

He is a self-described follower of such anti-missionary groups as Yad L’Achim. According to authorities, Teitel sought to kill those he deemed enemies of traditional Judaism: Palestinians, homosexuals, liberal Jewish intellectuals and, in the Ortiz case, Messianic Jews.

David Ortiz is well known in Israel, both for his activities in the Jewish community and for his efforts to expose Palestinians to the gospel.

“He said the reason why he wanted to kill me was that I was the most radical in evangelism, so I had to be first,” said Ortiz, who has seen transcripts of Teitel’s confessions.

Along with the Ortiz case, police said Teitel is responsible for the June 1997 shooting death of Samir Bablisi, a Palestinian taxi driver who was found in his cab with a single bullet wound to his head. Two months later, police said, Teitel allegedly shot Isa Jabarin, a Palestinian shepherd who was giving him driving directions to Jerusalem.

Police also said that Teitel attempted to burn down a monastery and unsuccessfully planted several bombs. He also is accused of the September 2008 bombing of Zeev Sternhell of Hebrew University in Jerusalem. The bombing left the emeritus history professor slightly wounded.

During one court hearing, Teitel flashed a victory sign and reportedly said, “It was a pleasure and honor to serve my God. God is proud of what I have done. I have no regrets.”

 

Long Road to Trial

David Ortiz said that as bad as the bombing itself was, waiting for the trial has been yet another ordeal.

As officials investigated the bombing, police harassed Messianic Jewish friends of theirs, saying, “If you are Jewish, why did you become a Christian?” Ortiz said.

The Ortiz family had to sue police and pay 5,000 shekels (US$1,320) to obtain a copy of a security camera video belonging to the family that police had seized as evidence. The video shows Teitel laying the basket at the Ortiz home.

“We had to hire a lawyer because we understood clearly that our rights as victims had to be protected,” said David Ortiz.

Particularly galling to the pastor has been the hands-off response of government officials to the attack.

“We are the only family in Israel that has been a victim of an attack that hasn’t been visited by a government official,” he said, adding that officials have made no public condemnation of the attack. “If the leaders do not condemn an act, it emboldens others who want to do the same thing.”

According to the International Religious Freedom Report 2009 issued by the U.S. Department of State, there are 10,000 Messianic Jews in Israel. The report documents several cases of violence against Messianic Jews, including cases where baptismal services have been disrupted, Messianic Jews have been beaten and Christian literature has been torched.

 

God Shows Up

Leah Ortiz said that what Teitel intended for evil, God meant for good in order to reach people.

“The Lord has taken the worst tragedy that could possibly happen and has used it for the greatest good that He possibly could,” she said.

The incident, and how the Ortiz family has dealt with it, has become a lightning rod of sorts in Israel, forcing people to think more seriously about the claims of the Messianic Jews.

In a place filled with the type of hatred that causes people to strap bombs to their bodies to kill others, the attack has given people a reason to think and, for some, to choose forgiveness and peace.

Ortiz said he has gotten calls from Palestinians who had said if he could forgive a man who bombed his child, then they can forgive what has happened to them. Orthodox Jews have called him and asked forgiveness for their hatred toward Messianic Jews. Muslims have called Ortiz offering blood for transfusions for Ami.

Ortiz said he was devastated after the attack, but that he has been blessed to see God working “supernaturally” through the incident. Ami is an example of God’s grace and healing power, Ortiz said, explaining, “Ami has been a wonder within my own eyes. How could anyone who went through so much be so peaceful?”

Ami’s high school friends, most of them not Messianic Jews, have sought him out and asked him about the ordeal.  Ortiz said he thinks God will use him in a big way.

His wife explained, “I have that sense this is about something bigger. This is something bigger than what has happened to us and to our family.”

Report from Compass Direct News

50 000 Visitors


The Random Thoughts Blog has reached something of a milestone – we have now had 50 000 visitors since we moved to the WordPress.com blogging platform. This isn’t a huge number of visitors when compared/contrasted with other sites, but it is still a big thing for this Blog. I wasn’t sure how many visitors we would get – I certainly wasn’t expecting that many. So thank you to everyone who has ever visited the site – even if you weren’t among our happier site viewers.

To mark this occasion I have changed the appearance of the Blog, to one that I hope is aesthetically more appealing and that will making the reading experience here so much better. The previous red-coloured links were getting to me, so I think this new look improves the reading experience here. Hopefully that proves to be the case. I do prefer the more clean approach to a Blog – much like a magazine or article in a book. It just allows me to enjoy the reading experience without having to struggle to stay focused on what I’m reading.

Anyhow – thanks again – and please come back.