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I never said it was easy and you were the one that suggested we should all go off and set up banks.
as a general concept tho, what better business can there be than lending out fictional money?
The point i was trying to make is that we shouldnt be trying to force the banks into making razer thin margins on residential property loans. I am happy for the banks to start creating a margin buffer zone on their lending.
This actually benefits me as a property investor. If the banks stay profitable they are less likely to resort to draconian lending standards.
Let me put it another way, what happens if banks look at their margins and think stuff this im not going to lend, unless its to the very best of borrowers, so they start to resort to draconian lending practices such as requiring 30 or 40% deposits (ie maximum LVR ratio's of 60 or 70%).
If bank margins on residential lending is really artificially high, then give it time, over time competition will force those margins to more realistic levels (and im not talking about inter action between the big 4 banks, other financial institutions WILL come into play if the margins are fat enough. And if you dont see increased competition in the future, then that just means that the margins are not really that fat afterall.) Leave the market to sought itself out, the natural persuit of profit is the great equaliser.
I see the point you are putting forward, but the banks can never go back to draconian lending practice under the current financial model. Banks need to lend more and more money to remain profitable otherwise they should just shut their doors now and go into liquidation. The govts around the world understand this and that's why you are seeing things like quantitative easing(read creating money out of thin air), taking the toxic loans off the banks balance sheets and govt guarantees. In the long run I believe that this is unsustainable but it will be interesting to see how long they can keep it going for.
Just as they should be! It was the explosion of off-balance sheet derivatives that brought the US financial market unstuck. Or more accurately, the lack of functioning regulation of the derivatives market.In fact, the absence of off balance-sheet funding mechanisms (securitisation etc) means that capital management tools available as little as 2 years ago are gone and all banks are now potentially limited by their capital base.
The point i was trying to make is that we shouldnt be trying to force the banks into making razer thin margins on residential property loans. I am happy for the banks to start creating a margin buffer zone on their lending.
Gawd, how big a margin do you want them to create?
THis time last year their profit margin was 54.8%.....that's $1 of profit for every $2 of interest and fees collected....
IMHO, there are two reasons the govt has backed the banks building ever higher profit margins:
1.
to keep bank capital adequacy ratios acceptable. i..e CAR = capital / risk
Risk is going up, therefore capital has to go up to maintain CAR.
Capital requirements are expected to go up because foreign banks are increasingly less prepared to refinance commercial loans in Australia, and local banks have to find the capital to cover that, or many businesses fall over.
2.
To minimize the risk of the govt bank guarantee being called and to fund the Rudd Bank.
Whichever way the wind blows, the taxpayer will cover bank risk via higher bank profit margins, or tax funded bank bailouts....
Anway i will give the article to my broker and ask him to get some answers from their research department.
Give it within the current quarter for further banks to increase is my belief.
Re your comments on people missing the boat on securing a good fixed rate what are your thoughts on unemployment figures released and expected predictions to possibly hit double digit in months ahead?