NZ Banks are very worried…

Written By: - Date published: 5:59 am, February 25th, 2015 - 76 comments
Categories: business, capitalism, cost of living, Economy, monetary policy, overseas investment, uncategorized - Tags:

New Zealand banks (which are really Australian banks) are REALLY worried (for themselves, oh and for us too).

KPMG is reporting that NZ (read Australia) bank executives are scared for themselves due to the high rate of cashed up property buying foreigners gobbling up land and homes in NZ. It’s taking profit from them and creating a potential crisis.

The Head of KPMG’s financial services, Mr Kensington said

“The consequences of an abrupt sharp price correction, were it to occur, could be devastating for the banking sector,”

Got that? It’s irrelevant if the exorbitant pricing is hurting kiwis, both renters and potential buyers, but the Banks? Ohhhhhh the banks are going to get hurt (yes, I understand if the banks collapse we all get hurt – but if the GFC taught us anything it’s that Banks don’t get really hurt by such corrections).

The upside of their fear is that it has forced a big organisation like KPMG (and one which this Government listens to) to dent the Government’s claim that foreign buying is NOT a problem with our property market (in Auckland especially).

The Banks didn’t give a toss when they were spending the profit generated on the back of decades of interest payments by ordinary kiwis (we still pay some of the highest interest rates in the western world for our loans – and are only now beginning to see the introduction of longer term loans) but they are seeing that disappear in high enough numbers to make them get KPMG going public on their behalf.

 

An IMF report in 2013 showed that New Zealand and Norway had the greatest deviation in house price to income ratios from historic trends among several advanced economies, at more than 60 per cent above the normal ratio.

The banks collectively posted a record profit of $4.8 billion in their last financial year, in most cases to September 30.

Kensington said the enormous profits were a result of banks being able borrow money cheaply to lend out on mortgages, falling bad debts, cost-cutting, and the continued house price boom in Auckland and Canterbury.

But while the bank rolled in money, it was a mixed year for their customers.

This government won’t listen to ordinary folks, despite mountains of anecdotal evidence from kiwis (home buyers, agents and commercial investors) about who is beating them to property and land in Auckland. Watch them react to KPMG publicly and privately. I will do so with interest.

 

76 comments on “NZ Banks are very worried…”

  1. Ad 1

    I don’t see high risk of correction while immigration into Auckland remains high. We remain a relative secure haven for Aussies, Chinese middle class, cashed-up Londoners etc. That’s a lot of inflow savings.

    Auckland land ownership is the gateway for foreigners owning major assets in New Zealand: Gain a house with cash, gain residency, avoid OIO scrutiny, and then buy a decent sized asset.

    The upsides to this are getting fewer for locals; it will continue for many years, and there is absolutely nothing to be done about it until 2017 at least.

    • Jones 1.1

      The concern here isn’t about devaluation. It’s purely loss of profits for the banks because the people buying the houses are relatively flush and don’t need to borrow as much, if any, from the banks.

      The only crisis here, as far as the banks are concerned, is the threat to their bank profits and banker bonuses.

      • Colonial Rawshark 1.1.1

        Correct. The banks will still remain in the black in Auckland were there to be a ‘horrific’ 20% house price correction (although I do think it very unlikely that it would be of that scale). Most mortgage holders in Auckland have more equity than that already sunk into their properties, only a small minority only put down a 10% deposit and kept it there.

        But the banks aren’t interested in being “in the black” they are interested in maintaining and growing their billion dollar profits.

      • tracey 1.1.2

        and that is why the government will finally (even if only behind the scenes) move on restrictions… not cos of kiwis but cos of the 16% return on equity they want from the shares in their blind trusts.

  2. vto 2

    Foreign ownership of our lands brings no benefit to us.

    None

    Nada

    In fact it is a negative

  3. Upnorth 3

    Questions
    I brought a property in Auckland 10 years ago for under $500k – sweated my backside off to pay the mortgage and raise 2 kids etc etc etc – modest incomes but above medium. We went without alot including holidays.

    Now my house is worth based on latest CV $1M.

    Do I sell to another NZer for $750k and feel good that I was patriotic or sell to the highest bidder and get $1M but feel even better and get that much rewarded holiday?

    Can someone tell me what law I have broken?

    note from author: it seems you are being deliberately distracting, but if you are new, consider this a warning to read our policy and stick to the topic.

    • vto 3.1

      You have broken no law and should abide by the rules as they exist.

      But that is not the issue is it. The issue is not compliance with the law, the issue is the suitability of the law.

      Your two children will be paying massive amounts more than they need or should to banks to pay the interest on their printed money loans, thanks to this law. You should reflect on that – there is no benefit to high house prices, other than support for the financial system i.e. the printing of more debt money.

    • b waghorn 3.2

      Were in this post is it suggested that you sell you’re house cheaply?

    • Colonial Rawshark 3.3

      Do I sell to another NZer for $750k and feel good that I was patriotic or sell to the highest bidder and get $1M but feel even better and get that much rewarded holiday?

      All you are pointing out is how stupid it is that housing is a free market where people dump their investment capital or go into debt peonage to the banks.

    • AsleepWhileWalking 3.4

      The law you are breaking is the law of the Bankster. They want you to remortgage your house and spend the money on consumables such as holidays, meals out, etc, or ….several other houses to rent out. Either way they win.

      http://wallstreetexaminer.com/2015/02/potterville-why-lenders-love-the-2-5-million-home-loan-bad-news-for-first-time-homebuyers/

    • Draco T Bastard 3.5

      So, what you’re saying is that you’re a selfish arsehole more concerned with yourself than your children and the community that supports you?

    • greywarshark 3.6

      Upnorth
      What law are you thinking about? I can’t see that any law is involved here. We are talking about supply and demand issues being affected by wealthy foreign people being able to come and buy up our country, and bid it up beyond the ability of most NZ to compete. In the process causing many of us to be unable to buy our own home to live in during our lives. Being able to get more from such foreign buyers is a huge temptation and hard for anybody to resist.

  4. Sable 4

    Sounds like the wheels have fallen off the gravy train, Had to happen sooner or later….

  5. les 5

    The banks are basically parasites.With fractional reserve banking the interest bearing debt they create is used by them in a lazy ,predictable fashion.Namely residential mortgages.A very small percentage is available for entrepreneurs and small business unless secured against property as security.Too big to fail banks are the biggest problem facing the western capitalist paradigm.Banking reform is urgently required.

  6. Jono 6

    It never ceases to amaze me that middle New Zealand is finding itself if exactly the same state as Maori 150 years ago. Perhaps it’s a truth too uncomfortable to realize but the ‘Chiefs’ making decisions for us are if exactly the same mind and spirit as those who sold and kept selling their birthright to the colonisers back in the day. I see the deeds of sale and the correspondence about the negotiations and it’s all the same names on both sides, chiefs, politicians and middle men taking their cut, just as it is today.

    I don’t particularly care that it’s Chinese, American, Russian or whoever, but I appreciate the irony if us becoming vassals in our own land, just like Maori did before us, while those at the top of the heap cream a little on the way.

    Maori could have pushed the British into the ocean during the first wars of the 1840s, if they had a mind to (rather than satisfy their mana, take some limited utu for insults and transgressions rendered, and then pick up the as-yet profitable relationship they were enjoying with Europeans. But when push came to shove twenty years later it was arguably to late.

    What point in this great cycle of history are we at?

    • Jenny Kirk 6.1

      Probably at the “too late” stage for us middle Pakeha NZers, Jono !

    • Sans Cle 6.2

      +1 Interesting comparison Jono.
      Is this just a facet of the capitalist/imperialist system?
      It would be nice to discuss historical situations when people didn’t sell out – so we can learn what to do in the situation we find ourselves.

    • Stickler 6.3

      +1 to Jono

  7. adam 7

    Why are people still dealing with the Aussie banks? I’m bewilder – I know some of it is rabbit in headlights stuff – but come on folks there are many, many options to move away from these Australian parasites.

    If you want to help others – join a credit union. Or if you want to stay within the banking system – there are at least three options of a fully owned Kiwi banks I can think of…

    Tracey – what scares the bejesus out of me – is when the bubble bursts – what happens to rents. I’d think it be a good opportunity for people not to pay rent and have a good old fashioned rent strike. But, on the reverse side – I guessing the private sector will go crazy. Up rents, kick people out, and generally strive to squeeze every cent out of working stiffs, who pay rent.

    • tracey 7.1

      If the bottom falls out, then mortgagee sales will abound and the very rich will snap them up, and keep renting them out.

  8. infused 8

    “Got that? It’s irrelevant if the exorbitant pricing is hurting kiwis, both renters and potential buyers, but the Banks? Ohhhhhh the banks are going to get hurt (yes, I understand if the banks collapse we all get hurt – but if the GFC taught us anything it’s that Banks don’t get really hurt by such corrections).”

    It’s not the banks problem. Banks here didn’t create this problem. Not sure who you are trying to crying to about this.

    • tracey 8.1

      You need to tell the Banks then. They are the ones who went crying to KPMG.

      • Phil 8.1.1

        Nobody “went crying” to KPMG.

        The press release is based on an annual survey KPMG run called the Financial Institutions Performance Survey. Part of the survey asks, quite sensibly, what financial institutions consider to be the key risks they’re facing now and in the future.

        If Banks didn’t answer this with a long comment on the housing market, then we should be worried.

        • Tracey 8.1.1.1

          you think they dont know when answering how that info might get used and have influence?

          i cant imagine they are compelled to take part in tge survey… and presumably they are the ones buying the report?

          • Phil 8.1.1.1.1

            The marginal impact of the latest version of an annual KPMG report is minuscule when compared to the influence banks already wield.

            You would have to be living under a rock for the last couple of years to have not seen the big-bank economists in NZ talking about the risks of a housing downturn, and what effect this might have on the economy in general, or their position in particular. It’s pretty ironic too, when you think about it… the economists have, in my view, very little in-house influence on the treasurers and credit managers of their banks who source funding and make loans.

            You’re right about one thing; no-one is directly compelled to complete the survey, but KPMG have existing working relationships (they’re auditors) with a significant percentage of the financial sector, so it’s not hard to get the survey completed. And, as is evident on all blogs, most people are pretty happy to give their opinion for free.

            • tracey 8.1.1.1.1.1

              And yet, it made the news… ahead of other matters, so not as miniscule as you suggest

              • Phil

                It made the news because the words ‘Auckland Housing Market’ were in the press release. Whether the survey, the press release, and the views therein were good or bad news it would have made most journo’s “squee” in delight at the thought of easy column inches.

                You also realise that there is a lot of space in the media for a lot of different news, right?

                • Tracey

                  So KPMG was just being manipulative for their own purposes? Ok, I guess that diminshes any credibility for what it claims was in the survey.

  9. saveNZ 9

    Ha ha, maybe that ‘market correction’ is karma to the banks losing their profits as cashed up foreigners come in not needing mortgages or using their own foreign banks. Welcome to unchecked globalism!

    I have been saying for a while that the housing problem is not landlords who seem to be a convenient whipping boy, but the rampant speculation, the unchecked rise and profiteering in the cost of building a house, with the massive profiteering on the services side, with the inefficiency of the council (not relating to RMA) and the rise in McMansions, houses designed as big as possible (which cost more to build, more to rent, and more to maintain and more to heat) as well as the lack of public transport and poor planning by councils and landowners encouraging urban spread and expensive sections with large unaffordable houses with no public transport.

    As well as making houses less affordable, the councils and government are actually reducing amenity and following a different agenda at the same time by their actions. Recent examples of reducing amenity are the council in Auckland cutting down historic trees (now saved) and granting the ports of Auckland the right to demolish the wharf and then reclaim and enlarge it, without even their own council being aware of it.

    Maybe now the banks are potentially hurting something might be done about all the above. As the war on terror takes hold, more cashed up foreigners and ex pats will return to NZ and be buying up the property here in NZ to live in or just own, as well as our farms for food supply.

    Soon even the lucky ones will be a tenant in their own country and the unlucky ones will not even be able to afford to rent a house in Auckland and Christchurch due to the shortage. Oh yes, the council in their wisdom is reducing standards to push through consents, someone should have a look at how many of these consents are actually affordable and suitable for families (i.e. not high rises) and how many are 4 bedroom, 4 bathroom spec houses designed for the top 5%?

    • Molly 9.1

      Agree with your comment and your insights.

      Both your examples (trees and ports) are from entities outside the council. Rodney Hide set the CCO’s and Auckland Transport up in that way so that Auckland Council had no direct influence over it.

      The interference of National government into the compact city intent of the Auckland Unitary Plan has been substantial. And it continues with more and more releases of SHAs, as well as the focus on roading. Planning for buildings should be integrated with planning for movement of people – it continues to be done as separate processes. This has been reinforced with the complete separation of Auckland Transport from Auckland Council.

      Len Brown – whom I did not vote for, but also received such unwarranted vitriolic and excessive attention over his affair – spoke at an Auckland Conversation last week.

      Referred to Auckland’s place on ‘the’ most livable cities list. He didn’t mention this list is compiled by executive relocation companies – and that Auckland is determined as one of the most attractive cities for executives to relocate to – mainly in terms of friendly business practices and access to natural environment activities.

      So when we hear “Auckland is one of the most liveable” we are not talking about liveable for the majority of Aucklanders living in the city, just the few imports that are here for the duration… until another CCO takes pity, and funds their return back to London. 😉

      • saveNZ 9.1.1

        Yes but there is a conflict of interest between Auckland Council Planners approving everything and the CCO’s benefiting. It’s actually the elected members of the council who seem most in the dark.

        One would have thought the ports should have been publicly notified?

        What sort of planners just rubber stamp this sort of thing?

    • GP 9.2

      Good comments, particularly about massive spec houses.

      From what I see where I live there is no starter housing any more like there was in the 1980s and 1990s with the likes of Keith Hay homes etc. For those that could get into such a home they might have progressed to a character home or brick and tile home a few years later.

      One of the things that concerns me is the whole cross-lease nightmare that thankfully has largely died out but leaves a ticking time bomb for the future especially those with properties on the North Shore. I would like to see these converted, where possible, to freehold titles if the properties are separate dwellings as I have had the experience of a nightmare neighbour.

      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10908594

      There has been an attempt at renewal near Pomare in Lower Hutt where ghetto state housing blocks have been cleared for new houses to be built each with its own small plot of land and access avoiding the cross-lease nightmare many people are now stuck with. Sadly, I believe the prices start at around $340K which for someone on a moderate wage would find difficult to save a deposit for let alone service a mortgage.

      One thing that makes me wonder though is that with the boomers dying off in larger numbers in the next 10-20 years whether or not there may be a glut of properties for sale that will depress prices and anyone overgeared will be seriously underwater.

  10. saveNZ 10

    I guess under National we can be occupiers in Iraq and tenants in our own country.

    It all makes sense!

  11. Sans Cle 11

    Nice post Tracey. Do you know whether the KPMG report is publicly available, or is it just the Stuff link you have?

      • Phil 11.1.1

        Shock horror. Private company makes a product. Asks people to pay money if they want said product.

        Alternatively, you could probably source a copy from one of the larger library’s.

        • tracey 11.1.1.1

          Shock Horror – Newspaper gives free advertising to company making a product but disguises it as news while guy called Phil claims influence of report is miniscule.

        • Sans Cle 11.1.1.2

          Phil, I presume the bank(s) has already paid KPMG for the commissioned report, as a private contract, rather than KPMG dreaming up this report to sell to general population in local magazine racks……and I doubt such a report would be in a public library!
          My question was merely to find out whether we are privy to entire report, in order to have full info.
          I’m not against paying for information, so your response was a bit presumptuous, in my opinion, …..and rather unnecessary!

          • Tracey 11.1.1.2.1

            Oh no, KPMG has done it as a public service and will get back what costs they can from people buying the report…

            (insert chuckle)

            • Phil 11.1.1.2.1.1

              KPMG …will get back what costs they can from people buying the report…

              (insert chuckle)

              (insert eyeroll)

              Funnily enough, that’s exactly right.

              KPMG has been producing the FIPS since ’09. It’s effectively an audit-firm equivalent of those Roy Morgan or AC Nielsen reports on public sentiment and opinion that come out from time to time. The FIPS is a great vehicle for KPMG to demonstrate to potential clients the depth and type of analysis they can offer.

              Put simply, there’s no conspiracy or attempt to influence housing market policy – I’m sure you can dream up plenty more direct and effective methods for a bank to do that without needing the conduit of an audit firm.

              The FIPS is just one in a million examples of a firm using the resources it has available to show publicly one of the ways it can add value to a potential client’s operations and processes.

              • Tracey

                Oh FFS Phil

                Banks know what KPMG will do with the information. As you are saying KPMG uses it as a marketing tool for, itself.

                IT’s either meant to have an influence or it’s not, do make up your mind.

                • Phil

                  Depends on what you mean by ‘influence’…?

                  i.e.
                  KPMG produce the FIPS, get some media air-time and effectively free advertising. A company then decides to use KPMG’s services because they like the style and depth of analysis in the FIPS and see the ability to use that KPMG to enhance their own business.

                  Is that ‘influence’? Because, that’s exactly what happens when the FIPS is produced each year.

                  Alternatively, as you appear to be suggesting, KPMG conspire with banks to produce a report that tells us what we all already know, banks included. The report then, somehow, “influences” public policy. I think this is what you’re suggesting and, in my experience, isn’t how the report gets used at all.

                  That said, the report is a really useful aggregation of information from disparate sources – it’s not just information on Banks, there’s also credit union and building society information, and I think insurance sector results too. In that sense the FIPS could be used to inform and provide evidence for public policy debate, but “influence” in the way you’ve used it comes across as a loaded term that just doesn’t match with what I’ve seen from the FIPS in the past.

  12. Ennui 12

    When the banks are worried for themselves be very fearful. I doubt it is the loss of business to cashed up buyers rather than the price inflation this causes in the Auckland property market. I suspect they are anticipating the house of cards effect a recession would start. A few foreclosures and a price “correction” will follow. The banks will then be exposed to equity values less than market, which should a recession get really large could lead to more unemployment, bankruptcy and mortgage failure…more mortgagee sales at lower and lower prices….and the beat goes on.

    Politically seeing middle NZ take a bath on second properties, first homes etc will be dynamite.

  13. les 13

    Which western govts guarantee their banks?Or do you mean a tacit ‘guarantee’?Wonder why they chose Goldman,a bank that was a basket case itself and had to be saved by Buffets 5bil injection and most importantly by the return of 100cents in the dollar on AIG paper.

    • Chooky 13.1

      @ les ….”Wonder why they chose Goldman, a bank that was a basket case itself” …good question

      I am no banker and can not answer these questions in detail … but this may help as to which governments guarantee deposits in the case of bank collapse…NZ is NOT among them…and I don’t think NZers’ deposits in Australian banks are safeguarded either

      http://en.wikipedia.org/wiki/Deposit_insurance

  14. les 14

    interesting that all the PIGS ‘ guarantee deposits.I guess with the OBR, NZ has the opposite!

    • KJT 14.1

      “OBR” Translated.

      Take our money to prop up failing financial parasites.

      • linda 14.1.1

        you used to be able to say as safe as money in the bank that doesnt apply anymore
        i wonder what would happen to kiwi saver money i really dont like banksters or share market the whole finacal system is corrupt rotten to the core

        • Colonial Rawshark 14.1.1.1

          And that is exactly the problem with Cullen’s KiwiSaver…it feeds and grows a huge private sector financial industry whose main goal is to ticket clip workers wages. And in the next major financial crash – workers pensions are the ones which get screwed over, as per the USA example. And all the big KiwiSaver managers will have done just fine with their ticket clipping tens of millions of dollars.

          • nadis 14.1.1.1.1

            NZ and US pensions are quite different. Most employer based pension schemes in the US are defined benefits, most in NZ are defined contributions.

            Re kiwisaver – shop around, there is a real difference between the besst and the worst choices. Fees are typically the largest differntiaator between “good” and “bad” outcomes. Choose a manager with low fees and no performance fee. Pressure on Kiwisaver fees is downward – its getting cheaper all the time.

          • GP 14.1.1.1.2

            That’s why I will not join Kiwisaver as it is not guaranteed and it don’t want it hollowed out by a scheme provider.

  15. Robbing your neighbourhood 15

    Too soon for the shit to hit the fan at the banks yet but this article and KPMGs comments is perfect timing to set up the view in the public arena that it could happen because it WILL, just not yet that’s all.

    At the end of this current housing and economic boom, which still has legs for a few years, expect to see one of the big four banks collapsed courtesy of the OBR and Major Bank Acquisition policies. These two very suspiciously timed policies were introduced via the Treasury department and RBNZ just a few years ago in anticipation of the coming orchestrated bank collapse which will wipe out billions of bank depositors funds in the name of ‘isolating the financial impact on the wider economy in the event of a bank collapse”.

    The manipulation of NZs banking industry (aided and abetted by the legal and accounting fraternities and certain members of parliament) at the expense of kiwi ‘mum and dads’ over the long term has become boringly predictable…

    The pattern is clear with huge losses being orchestrated every decade or so, the major benefactor being the Australian banks or their NZ domiciled businesses.
    1980’s orchestrated collapse of government owned DFC
    1990’s orchestrated loss of government owned BNZ to Australian interests
    2000’s orchestrated collapse of NZs finance companies

    The coming big bank that will be collapsed doesn’t even have to go broke it just needs to fail the automatic overnight OBR test which can see a breach on technical terms only (not unlike the technical breaches of many finance companies that saw their common trustee – Executor Trustees Ltd – step in to shut them down even though they were not in default of their liabilities). Their assets were carved up by the receivers who gave back (their main long term clients I.e. the banks) the top quality assets at heavy discounts whilst lumbering mum and dad investors with the crap assets that got cents in the dollar, of course then the scapegoats became the finance company directors who everyone in the legal fraternity already knew were treading a thin line with boardroom decisions, because those very same legal and accounting firms were the ones ‘advising’ those directors on how they could ‘walk that thin line’ of course their advice was on the basis of fat fees and all care, no responsibility.

    When one of the big four fails to meet the OBR test (which is tested every business day at night automatically) then that bank will have 10-20% of depositors funds frozeny RBNZ and that bank will most likely be sold overnight to another of the remaining trading banks without any need to meet the stringent merger and acquisition laws in place to protect consumers from a rapid big business takeover resulting in decimating value to stakeholders. The Major Bank Acquisition policy cuts through the protection measures typically in place for consumers in regard to major business acquisitions.

    This all adds up to looking like just another scam against unsuspecting kiwis driven by naive and/or merchant banker style members of parliament and another perfect setup to tip billions of dollars out of mum and dads pockets.

    Oh and guess who is likely to be the accounting firm that gets the job of cleaning up the mess afterwards, whilst milking tens of millions in fees for the job?
    Most likely the banking specialised firm that always appears to be close to the banking industry, milking it for all it can get.

    That’s capitalism for you.

    • Colonial Rawshark 15.1

      Thank you for your detailed post.

    • Chooky 15.2

      thanks …will take me a while to get my head around this

      …I wonder is it true that a former top Kiwibank Manager left because he was being forced ( by the government?) to make Kiwibank take, in his opinion, unnecessary risky loans from European Banks in order to grow the Kiwibank faster?

      ( whose advice?…who was putting the pressure on him?)

      • nadis 15.2.1

        Pretty sure that isn’t true. Who was it? What is an unnecessary risky loan? Balance sheet growth is decided at board level, not manager level. And if they want to borrow money, the cheapest place to borrow right now is from Kiwi retail investors.

      • Chooky 15.3.1

        …well yes…so mum’s and dad ‘s bank, money and mortgaged assets are being protected?????!…by the OBR???.

        ..will have to get my head around that link too… thanks

        ….i remain skeptical however

        • nadis 15.3.1.1

          The OBR is just the proedure that the RBNZ (not KPMG) will follow if a bank is likely to fail.

          The whole idea around it is that the failed bank will keep its doors opens and depositors can get their money out of so inclined. But the RBNZ will determine how much of the bank capital structure is locked up. It may be that the depositors get all their money back or not, but first to be wiped out are the equity, then subordinated debt etc all the way up the capital structure until you get to deposits. The RBNZ’s primary goal is to stop any systemic risk and protect the Crown from losses.

          Something a lot of people don’t understand is the actual nature of a bank deposit. When you deposit your money in a bank you are actually making an unsecured loan to the bank.

          • Tracey 15.3.1.1.1

            “is just a procedure” – yup of freezing accounts and being permitted to use 25% of deposited funds to make up for defaults?

    • Tracey 15.4

      Thanks for this.

  16. linda 16

    its the potential of thousands of defaulters as it was in the us sub prime . loans way above income levels that can never be repaid it should be remembered unlike the us our mortgages are recourse loans.
    banks here have been reckless with the loans a really good article in Forbes last year was very insightful and frightening at the same time new Zealand is a house of cards
    and its only when not if .
    http://www.forbes.com/sites/jessecolombo/2014/04/17/12-reasons-why-new-zealands-economic-bubble-will-end-in-disaster/

    • nadis 16.1

      The US is not a non-recourse country. Most states are in fact recourse. Here is a list of the non-recourse states:

      Alaska
      Arizona
      California
      Hawaii
      Minnesota
      Montana
      North Dakota
      Oklahoma
      Oregon
      Washington

  17. les 17

    The Bank of North Dakota is a profitable,local bank that is a good example of the role banks should play in communities.The big Wall St banks need to be broken up and regulated.Today they are actually taking more risks than they were leading up to the GFC in 2008 and making more profits than ever at the de regulated casino that is financial leverage and manipulation of markets.When they are caught rigging markets or money laundering ,the usual’ punishment’ is a fine which represents to them almost a cost of doing business.They appear to be immune to the laws that ordinary folk are expected to abide by.

  18. nadis 18

    To anyone who is not lived or worked in the US – it is pretty hard to understand their banking system, and it is definitely not easy to compare to NZ. Forgetting all the legislative differences, and the Federal/State issues around regulation etc – there are around 7000 us banks that are federally insured (up to 250,000 per deposit). At the monent there are (from memory) around 300 banks of the Fed “problem list” which is a post GFC low.

    Most banks in the US are regionally based, with a small number of branches and quite tight community links. Often family owned, though in recent decades a lot have been selling to regional chains.

    I don’t actually believe the big banks are taking more risks now than pre-GFC, in fact they are certainly less – if risk is being measured correctly, (which we won’t know is true or not until the next crisis) and I agree with current thinking (by academics, the FED, the US Treasury) that repeal of Glass Steagall wasn’t a root cause of the GFC. My counterfactual there is that nothing the very big banks did leading in to the GFC is stuff they couldn’t have done if GS hadn’t been repealed. It all still would have happened, just via different entities.

    Like every financial crisis ever (past and future) the root causes were mis-alignment of incentives, and resultant weak oversight.

    • Phil 18.1

      Like every financial crisis ever (past and future) the root causes were mis-alignment of incentives, and resultant weak oversight.

      It’s worth noting that ‘weak oversight’ doesn’t need to just mean regulatory or government oversight. It’s also doesn’t necessarily mean “not enough regulation”.

      The internal checks and balances within a bank, like the balance of power between (a) the front-line credit people and (b) the risk/audit review people, seemed heavily in favour of the former group before and during the GFC. I understand there was also a weirdly low-level of interest in liquidity risk management at a lot of banks who ultimately failed. These kinds of behaviors and outcomes are very difficult to solve by regulation and have to come from culture-change within the industry itself.

      I think it’s also the case that the Chief Executive of a US bank could also Chair the its Board of Directors? That’s a hell of a lot of power in the hands of once person. In NZ the Chair must be independent of the bank their responsible for overseeing.

    • les 18.2

      Ask yourself then,just why the big banks lobbied so hard to get Glass Steagal repealed!

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