On Tuesday (November 3, 2020), the Reserve Bank of Australia made its monthly announcement with respect to the conduct of monetary policy. The governor Philip Lowe released this – Speech – to announce the decision. There were four elements to the decision, which I will explain. But the most significant aspects of the decision was to set the support rate on excess reserve balances to zero and increase their government bond buying program by 200 per cent. And the most significant aspect of that last decision was how much dodging and weaving went on to deny what they are actually doing. And, within the decision is a point that I would have expected State Premiers to be up and arms about but, instead, there was silence. All in a day of paradigm shift in economics....Bill Mitchell – billy blog
Memo: Right pocket to left pocket – don’t let anyone know what it going on in these trousers.
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
We’ll have to see if the 100b Reserve Asset additions are going to cause a problem with Australian Depository overall leverage regulations or deposit liability regulations...
ReplyDeleteI’m not fully familiar with what is the current regulatory arrangements in AUS.... this is from 2016:
https://www.rba.gov.au/publications/fsr/2016/oct/aus-fin-sys.html
"The increase in capital ratios over the past year has also been reflected in higher leverage ratios, given that the average risk weight of their assets was largely unchanged. The leverage ratio is a non-risk based measure of a bank's Tier 1 capital relative to its total exposures, and is intended to be a backstop to the risk-based capital requirements. The leverage ratio framework is yet to be finalised internationally, although the Basel Committee's governing body agreed the minimum requirement should be 3 per cent and that the leverage ratio should be effective from January 2018. Each of the major banks' leverage ratios was around 5 per cent at June 2016, well above that minimum. At this level, the major Australian banks' leverage ratio sits around the median of international banks.”
Do not know if this has been updated or recently modified.... they may still be regulating amount of consolidated assets... or maybe they took a cue from the Fed in May and at least temporarily suspended the regulation...
Banks should be 100% private with 100% voluntary depositors and then no one should care - besides sophisticated investors - what their leverage ratios were.
ReplyDelete"no one should care - besides sophisticated investors - what their leverage ratios were."
ReplyDeletelol then what would prevent them from buying every asset on planet earth?
Bank runs.
ReplyDeleteOr don't you know that bank liabilities are liabilities for FIAT and banks can't create fiat?
The leverage ratio is equity (A-L) divided by assets... liabilities themselves don’t have anything to do with it...
ReplyDeleteThey could just go buy everything and it would accrue to owners equity... that’s why we have a leverage regulation...
Without government privileges (e.g. deposit guarantees, e.g. lender/asset buyer of last resort, e.g. exclusive right to use fiat in account form, etc.), banks would be reserve constrained as well as capital constrained.
ReplyDeleteOr would you keep your own deposits in an uninsured bank with no other government privileges when you could instead keep them in your own, inherently risk-free account at the Central Bank or Treasury?
So much then for the ability of 100% private banks with 100% voluntary depositors to "buy up the world" even without capital regulations.
Banks just want to be free...
ReplyDelete