Who to Blame for the Flattening Yield Curve

From Moody’s

The U.S. economy is humming along, but we believe that the economy will weaken and likely fall into recession sometime in 2020 as the boost from the fiscal stimulus fades. There is considerable uncertainty in the timing of the next recession, but the U.S. bond market increases our concerns about the economy in the next couple of years.

Since the mid-1960s, the yield curve, or the difference between the 10-year Treasury yield and three month yield, has been nearly perfect in predicting recessions. On average a recession occurs 15 months after the yield curve inverts. The shortest time between an inversion and a recession was eight months in the early 1970s. The longest was 20 months in the late 1960s. It has given only one false signal, in 1966, when a slowdown—but not an official recession—followed an inversion.

Assuming our forecast for the next downturn is correct, the yield curve should invert late this year or early next. Further flattening in the yield curve doesn’t alter our forecast for GDP growth this year, but it does pose some downside risk. As the yield curve flattens, it could weigh on the collective psyche, particularly among investors. Investors are a fickle bunch, and the further flattening in the yield curve could increase the odds of a sudden decline in stock prices, which if significant and persistent could have noticeable economic costs.

Knowing why the yield curve is flattening is important in assessing whether there should be concern about growth this year and early next. If it is because the lower long-term rates are fueled by concerns about U.S. growth, that would raise a red flag. This doesn’t appear to be the case now, because the 10-year U.S. Treasury yield has been hovering generally between 2.8% and 2.9% since the beginning of February and is up 40 basis points since the end of 2017. Therefore, the flattening in the yield curve is coming from the short end, which has put the focus on the Fed. But the central bank is only part of the story.

The flattening in the yield curve is less troubling for the economy in the very short run if it’s occurring because the economy is doing well and the Fed is raising short-term rates while the long-term rate continues to be depressed by the size of the Fed’s and other global central banks’ balance sheets.

It doesn’t appear that the dynamics for long-term rates will change significantly soon, so the next rate hike by the Fed, likely in June, will flatten the yield curve further. Therefore, the Fed will feel the heat for flattening the yield curve, potentially fanning concerns that it is headed for a policy mistake that will end this expansion.

However, the Fed isn’t the only reason that the yield curve is flattening. The Treasury Department has ramped up its issuance in anticipation of a higher deficit from last year’s tax overhaul and a two-year budget deal that will increase federal spending over the next two years. Over the past few months, Treasury net issuance of bills has spiked. Net issuance of bills in March was $211 billion following a net $111 billion in February. The increase in supply has driven short-term interest rates higher. In fact, prior to the Fed rate hike in March, the spread between the three-month Treasury bill and the fed funds rate was the widest over the past 15 years.

We see the odds rising that the yield curve inverts by the end of this year. This would increase the odds of a recession in the subsequent 12 months.

Government’s misjudgement on banking royal commission comes back to bite it

From The Conversation.

If you are a politician, what do you do when your bad judgement – or worse – has been dramatically called out for all to see?

That’s the question which has faced the government as appalling behaviour by the Commonwealth Bank, AMP and Westpac has been revealed this week at the royal commission into misconduct in the banking, superannuation and financial services industry.

Former deputy prime minister Barnaby Joyce went the full-monty confession. “In the past I argued against a Royal Commission into banking. I was wrong. What I have heard … so far is beyond disturbing”, he tweeted.

Joyce is now a backbencher, and free with his opinions. It’s another story with current ministers. They continue trying to score political points over Labor, which had been agitating for a royal commission long before it was set up.

The ministers claim the government laid down terms of reference that took the inquiry beyond what Labor was proposing. But although Labor never released terms of reference, it flagged in April 2016 a broad inquiry into “misconduct in the banking and financial services industry”.

The real difference between the government and the opposition was the emphasis on superannuation. While Labor’s inquiry would have covered it, the government wrote in a specific term of reference, hoping evidence about industry funds might embarrass the unions and therefore the ALP. The commission has yet to reach those funds.

Revenue Minister Kelly O’Dwyer, pressed about her refusal to admit the government had erred in opposing a commission, told the ABC on Thursday, “Initially, the government said that it didn’t feel that there was enough need for a royal commission. And we re-evaluated our position and we introduced one”.

Well, that’s the short version. In fact, the government was forced to drop its resistance when Nationals rebels threatened to revolt. Take a bow, Queensland Nationals backbenchers Barry O’Sullivan, George Christensen and Llew O’Brien. You did everyone a service.

Indeed, the Nationals were on the case of the banks very early. Nationals senator John “Wacka” Williams for years pursued the rorts, through Senate committee investigations.

The government’s resistance to the royal commission was bad enough but remember its earlier record on consumer protections in the financial services area.

When the Coalition came to power it was determined to weaken measures Labor had introduced. Eventually, it was thwarted by the Senate crossbench, with the upper house disallowing its changes.

Just why the government was so keen to shield an industry where wrongdoing had been obvious is not entirely clear. It appears to have been a mix of free market ideology, a let-the-buyer-beware philosophy, and some close ministerial ties with the banking sector.

In light of what is coming out, the government should be ashamed of its past performance.

This week, the commission heard about AMP, which provides a wide range of financial products and advice, charging for services it didn’t deliver, and deliberately misleading the regulator, the Australian Securities and Investments Commission (ASIC), about its behaviour.

It also heard how the Commonwealth Bank’s financial planning business charged customers it knew had died, including in one case for more than a decade. Linda Elkins, from CBA’s wealth management arm Colonial First State, agreed with the proposition put to her that the CBA would “be the gold medallist if ASIC was handing out medals for fee for no service.”

A nurse told of the financial disaster after she and her husband, aspiring to set up a B&B, received advice from a Westpac financial planner, including to sell the family home.

Seasoned journalist Janine Perrett, who now works for Sky, tweeted, “I thought nothing could shock me anymore, but in my forty years as a journo, most of it covering business, I have never seen anything as appalling as what we are witnessing at the banking RC. And I covered the 80’s crooks including Bond and Skase.”

The commission’s interim report is due September 30 and its final report by February 1, not long before the expected time of the election. There is speculation over whether the reporting date will be extended. Bill Shorten says the inquiry should be given longer if needed; Finance Minister Mathias Cormann has indicated the government would do what Commissioner Kenneth Hayne wanted.

Those in the government who think the original timetable should be adequate note that, unlike for example the royal commission into institutional responses to child sexual abuse, this inquiry is not undertaking deep dives into everything, but exposing the general problems.

From the opposition’s point of view, it would be desirable for the inquiry to run on. That would keep the banks a live debate, and leave it for Labor, if elected, to deal with the commission’s outcome. Shorten is already paving the way for a compensation scheme financed by the industry. Given the poisonous unpopularity of the banks, the Coalition could hardly run a scare about what a Shorten government might do.

Ideally, the government needs the issue squared away before the election.

The government insists it has already put in train a good deal to clean up the industry including a one-stop-shop for complaints, higher standards for financial advisers, beefing up ASIC, and a tougher penalty regime.

Morrison on Friday will announce the detail of stronger new penalties for corporate and financial misconduct, including ASIC being able to ban people from the financial services sector.

One argument the government made against a royal commission was that it would just delay action. But of course if it had been held much earlier, by now we might have in place a full suite of reforms.

Most immediately, the shocking stories from the commission are adding to the government’s problems in trying to sell its company tax cuts for big business to key crossbench senators and to the public.

Author: Michelle Grattan, Professorial Fellow, University of Canberra

Heavy penalties are on the table for banks caught lying and taking fees for no service

From The Conversation.

Another week of hearings of the Financial Services Royal Commission has seen financial services company AMP admitting it mislead the Australian Securities and Investment Commission (ASIC) on 20 occasions. The commission also saw evidence of both AMP and the Commonwealth Bank of Australia paying themselves client money when there was no adviser allocated to provide services, or the client had passed away.

It seems ASIC and the Director of Public Prosecutions will have no lack of evidence to pursue civil penalties and criminal cases. The bigger issue is what charges to go with.

In deciding what to pursue, ASIC and the DPP will need to weigh up the costs, the charges individuals are willing to plead guilty to, and the outcomes that will best serve the public interest.

Convicting individuals clearly “sends a message”, but these employees are easily replaced with others just as willing to commit the offences, unless the organisation’s culture is changed.

ASIC has confirmed it has a broad-ranging investigation into AMP already underway, and the Treasurer has suggested the behaviour might attract jail time.

Whether or not bankers get jail time will depend on the actual offences charged and a range of sentencing factors. However, the courts are increasingly emphasising the importance of substantial sentences for white collar crime.

Offences with similar maximum penalties in the UK led to a UBS banker who manipulated the London Interbank Offered Rate being sentenced to 14 years jail in 2015. Another joined him in 2016 for two years and nine months and three others were also convicted.

What AMP and CBA did

AMP and CBA have admitted they failed to provide information and report breaches to ASIC as required by the Corporations Act. Misleading Australian government agencies is also a criminal offence under the Act and the Commonwealth Criminal Code.

As well as dealing truthfully with ASIC, all entities licensed to offer financial services must act “efficiently, honestly and fairly” and take reasonable steps to ensure their employees do likewise.

It is not hard to see how taking clients’ money without providing a service is not efficient, honest or fair.

Civil penalties

Civil sanctions could apply to conduct at AMP and CBA which could ultimately involve disqualification for up to 20 years from working as a corporate officer and/or a fine of up to A$200,000.

Officers of a corporation are very senior employees and usually immediately below board level. They have a duty to be careful and diligent and act in the best interests of the company under the Corporations Act. There is a range of lesser charges from general dishonesty to false documentation offences.

Officers of a corporation have duties which require them to be careful and diligent. This is because the officers may have failed to follow up or failed to prevent conduct) after finding out about what was going on.

If ASIC and the DPP can go further and prove that AMP and CBA officers have intentionally caused their company to break the law, it is virtually impossible that conduct could be in the interests of the corporation. AMP and CBA officers may have also breached criminal offences in the Corporations Act if the wrongdoing was reckless or intentionally dishonest.

Criminal charges

Turning to more general offences, here criminal penalties range from 12 months in jail for misleading ASIC, to significant penalties for conspiracy to defraud.

Any bank employee who was involved in the creation of misleading documentation might well be exposed to fraud charges. Under Commonwealth and state law, fraud can involve reckless deception of another (either ASIC or the clients) with an intention to gain a financial advantage for another (AMP or CBA) Those offences have maximum penalties of 10 years jail. There is a range of lesser charges from general dishonesty to false documentation offences.
Those who assisted might well also be liable through accessorial liability.

Prosecutors could also turn to the conspiracy to defraud offence. The Commonwealth version of the offence involves an agreement to dishonestly influence a public official’s decisions. An agreement to provide false documents to ASIC would seem easily to fit this offence. Again, this has a maximum penalty of 10 years.

Similarly, common law conspiracy to defraud charges could be available for dishonestly misleading customers in a way that caused them financial loss. There are no prescribed maximum penalties for this version of the offence.

Multiple offences could mean sentences served concurrently, or partly cumulatively.

Although the wrongdoing may seem clear to the public, it is likely that complex matters of proof will emerge and ASIC will need to make a range of decisions about the best approach to ensuring cultural change occurs. While convictions might be deserved, the public interest is best served by ensuring that prosecutions are part of wider regulatory action leading to better banking practices.

Authors: Dimity Kingsford Smith, Professor and Director, Centre for Law Markets and Regulation, UNSW Law, UNSW; Alex Steel, Professor, UNSW Scientia Education Fellow, UNSW

March Unemployment Up A Little

The ABS released their March 2018 unemployment statistics today.

The trend unemployment rate increased slightly to 5.6 per cent in March 2018. The trend participation rate increased to a record high of 65.7 per cent in March 2018.

“The labour force participation rate now sits at 65.7 per cent, the highest it has been since the series began in 1978, indicating that the population is participating in the labour market at a record high level,” the Chief Economist for the ABS, Bruce Hockman, said.

In line with the increasing participation rate, employment increased by around 14,000 persons. Part-time employment increased by 13,000 persons and full-time employment by 1,000 persons, reflecting a slowing in full-time employment growth.

Over the past year, trend employment increased by 3.1 per cent, which was above the average year-on-year growth over the past 20 years (1.9 per cent).

The trend monthly hours worked increased by 0.2 million hours (0.01 per cent), with the annual figure sitting at 2.6 per cent.

The trend unemployment rate increased slightly to 5.6 per cent in March 2018.

“The unemployment rate has continued to be relatively constrained over the past year, and is still hovering around 5.5 to 5.7 per cent”, Mr Hockman said.

Over the past year, the states and territories with the strongest annual growth in trend employment were Queensland (4.3 per cent), the ACT (3.9 per cent), and New South Wales (3.6 per cent).

WA has the highest, and still rising trend employment rate at 6.4%

The seasonally adjusted number of persons employed increased by 5,000 in March 2018. The seasonally adjusted unemployment rate remained at 5.5 per cent after the February number was revised down, and the seasonally adjusted labour force participation rate decreased slightly to 65.5 per cent.

The RBA’s Busted Flush

An important post from Macrobusiness (MB) by the excellent Leith van Onselen which  opens the can of worms which is the RBA’s Committed Liquidity Facility (a.k.a. Bank Safety Net or  Unofficial Government Guarantee). Its all about the RBA’s version of QE!

He says:

Figures from the International Monetary Fund (IMF) show that Australian government debt has risen faster than most other developed nations, increasing from 16.7% of GDP to an expected 41.7% this year – a jump of 25 percentage points. From The Australian:

The IMF report comes as Scott Morrison prepares to unveil next month’s budget, which will recycle improved company tax flows into personal income tax cuts while taking on more debt to ­finance infrastructure development. The Treasurer argues that the government is no longer borrowing to finance daily running costs but just to cover infrastructure and defence investments.

The mid-year budget update in December showed gross debt peaking at $591 billion in 2019-20, having hit $500bn in 2016-17. Gross debt stood at $319bn when the Coalition took office in 2013.

The IMF predicts this year will be the peak for Australian gross debt at 41.7 per cent of GDP, before a decline to 32.2 per cent over the next five years…

Although the IMF projects that Australia’s federal and state budgets will be back in surplus by 2020, it says there will be a continuing need to raise funds to roll over debts as they mature.

We think the projected return to surplus by 2020 is wishful thinking, given:

  • Commodity prices will likely fall, draining company profits, national income, and company tax revenue;
  • The housing downturn will dampen consumer spending, jobs and growth, draining company and personal income tax revenue; and
  • We are likely to see tax cuts offered from both sides in the upcoming federal election campaign.

Regardless, there is another important question that is rarely asked outside of MB: why is the Reserve Bank of Australia (RBA) persisting with the Committed Liquidity Facility (CLF) when there is now so much government debt on issue?

The CLF was established in late-2011 in order to meet the Basel III liquidity reforms. Below is the RBA’s explanation of the CLF [my emphasis]:

The facility, which is required because of the limited amount of government debt in Australia, is designed to ensure that participating authorised deposit-taking institutions (ADIs) have enough access to liquidity to respond to an acute stress scenario, as specified under the liquidity standard…

The CLF will enable participating ADIs to access a pre-specified amount of liquidity by entering into repurchase agreements of eligible securities outside the Reserve Bank’s normal market operations. To secure the Reserve Bank’s commitment, ADIs will be required to pay ongoing fees. The Reserve Bank’s commitment is contingent on the ADI having positive net worth in the opinion of the Bank, having consulted with APRA.

The facility will be at the discretion of the Reserve Bank. To be eligible for the facility, an ADI must first have received approval from APRA to meet part of its liquidity requirements through this facility. The facility can only be used to meet that part of the liquidity requirement agreed with APRA. APRA may also ask ADIs to confirm as much as 12 months in advance the extent to which they will be relying on a commitment from the Bank to meet their LCR requirement.

The Fee

In return for providing commitments under the CLF, the Bank will charge a fee of 15 basis points per annum, based on the size of the commitment. The fee will apply to both drawn and undrawn commitments and must be paid monthly in advance. The fee may be varied by the Bank at its sole discretion, provided it gives three months notice of any change…

Interest Rate

For the CLF, the Bank will purchase securities under repo at an interest rate set 25 basis points above the Board’s target for the cash rate, in line with the current arrangements for the overnight repo facility.

In light of the federal budget deficit projected to balloon out to nearly $600 billion, the question for the RBA is: shouldn’t the CLF be unwound and the banks instead be required to hold government bonds, as initially required under Basel III?

Bonds on issue are roughly triple that of when the CLF was first announced, so surely the RBA should amend the liquidity rules so that Australia’s ADIs are forced to purchase government bonds, so that the size of the CLF requirement decreases?

The most likely reason is because the RBA wants to keep open the option of bailing-out the banks. As noted by Deep T:

When there is capital flight due to official interest rate decreases, the RBA could and would step in and fund the banks’ funding shortfall from a loss of international investors using the Committed Liquidity Facility at rates below the banks’ international funding rates. The CLF used in these circumstances would be a form of quantitive easing and would have a dampening effect on mortgage rates by subsidising bank borrowing rates but could never be a lasting solution and only have limited effect in the long term. So yes, high cost international funding by the banks can easily be replaced by cheap RBA funding through a form of QE or money printing subsidising bank profits and banker bonuses.

The fact of the matter is the CLF represents another subsidy to the banks. The cost of the CLF is very low – i.e. 15bps pa – compared to the alternative. The CLF allows ADIs to originate mortgage assets and create RMBS rather than buying government bonds. The net spread on mortgage assets or RMBS compared to government bonds is much greater than 15bps pa, thus representing a significant direct subsidy to the banks.

MB reader, Jim, nicely dissected the lunacy of the CLF in a comment in 2016:

You’ve missed the real beauty of the CLF, and APS210

So the banks are forced to hold ‘as much as possible’ qualifying Tier 1 securities to meet their APS210 requirements. But… even with the large commonwealth government deficit, there still isn’t enough CGS to go round (CGS and TCorp bonds only qualify for Tier 1 securities under APS210).

Which is why the RBA invented the CLF. The CLF allows, no, it requires the banks to:

– hold their own securitised bonds on their balance sheet to qualify as ‘liquid assets’
– buy each other’s bonds to qualify as ‘liquid assets’

So, ANZ, CBA, NAB and WBC each have around $50bn of their own off balance sheet mortgages sitting back on their balance sheet to protect them against a ‘liquidity event’. Then they each have around $10bn each of each other’s bonds, so NAB holds around $50bn of WBC/ANZ/CBA bonds etc.

And if / when the liquidity shit hits the fan (e.g. foreigners stop buying the bank’s bonds), the banks can swap them into the RBA for a 15bps fee.

So the RBA will be forced to sit on about half a trillion dollars of Aussie bank paper ($100bn each plus a little more for CBA and WBC, plus Suncorp, Bendigo etc). Just think what THAT would do to your graph of yellow lines – more than double it in an instance.

So the CLF is not about government debt, its about bank debt, and how the RBA has bent over forward for the banks. Having worked in treasury at a Big 4, the CLF is the biggest joke under the sun – a guaranteed way to print money for the banks. This is why the fixed income desks at banks are always the best paying – those guys are paid to buy and hold bank bonds under APS210 requirements.

Do an investigation on how much REAL systemic debt is sitting in the banking system – the RBA has made itself lender of last resort to over $500bn worth of debt.

The bottom line is that with the stock of outstanding Commonwealth debt now so large (and still growing), the rationale for maintaining the CLF has evaporated. But don’t expect any action from the RBA, which wants to maintain the capability of bailing-out the banks via its own form of quantitative easing.

Well said…


HIA Says Affordability Improving in Most Capital Cities (Thanks To Price Falls)

“Affordability improved in most of Australia’s capital cities during the first three months of 2018 as house price pressures eased,” commented Shane Garrett, HIA Senior Economist.

This does not necessarily take account of the now tighter, and becoming even tighter lending standards now in play.  In any case, in most centres, affordability is still well below the long term averages.

HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account latest dwelling prices, mortgage interest rates and wage developments. The results are published and analysed in the HIA Affordability Report.

“Affordability in Sydney improved by 1.9 per cent as a result of the reduction in dwelling prices over the past six months, while in Melbourne the outcome was largely unchanged as price growth remains solid.

“Across the eight capital cities overall, affordability improved slightly (+0.2 per cent) during the March 2018 quarter. The improvement was held back by strong home price growth in a limited number of markets including Melbourne and Hobart.”

“Current interest rate settings continue to benefit affordability. The RBA’s official cash rate is at a record low and hasn’t been moved in over 20 months – an unprecedented period of stability.

“Even though we have started to move in the right direction, housing affordability remains very challenging in the larger capital cities. The root cause of the problem is that the cost of producing new houses and apartments is still too high.

“Governments need to focus on solutions involving lower land costs, a more nimble planning system and a lighter taxation burden on new home building,” concluded Mr Garrett.

Australian Finance Group acquires strategic interest in Thinktank

Australian Finance Group Limited announced that it has entered into a binding agreement to make a strategic investment of 30.4% (fully diluted) of Think Tank Group Pty Ltd (“Thinktank”) for $10.9 million in cash consideration. In connection with the investment, AFG will distribute a white label Commercial Property product through its network of brokers.

Thinktank operates primarily as a small ticket (sub $3m) commercial property lender and was established in 2005. Thinktank operates nationally and has a loan book in excess of $750 million. It has established itself as a viable and competitive non-major commercial property lender in a sector that has been bereft of competition and choice for too long.

AFG Chief Executive Officer David Bailey explained the decision: “Our strategic investment in Thinktank represents the next evolutionary step for AFG to diversify its earnings base. The ongoing success of AFG Home Loans and the introduction of AFG Business are important contributors to the future growth of AFG. It makes sense to participate further in an asset class that we are comfortable with – both directly through the white label opportunity and indirectly through our shareholding to generate further earnings for AFG.

“The opportunity to blend Thinktank’s commercial property lending expertise with our own distribution and securitisation capability will benefit both businesses. It will also enable us to deliver further competition and choice to the small to medium enterprise (SME) market place at a time when it is most needed. AFG aims to bring the same disciplines to this white label proposition as we have successfully demonstrated with our own residential white label programme,” added Mr Bailey.

Thinktank CEO, Jonathan Street, commented: “The agreement reached with AFG marks a further significant step forward for our business and serves to further enhance our capacity to best service the finance needs of borrowers over the breadth of the Australian commercial property market.

In coming together, we see considerable opportunity to not only combine our efforts to great effect across the AFG network but equally in extending the same emerging advantages and benefits to our wider base of aggregation and broker relationships.”

Investment highlights:

  • Investment of 30.4% (fully diluted) of Thinktank Group Pty Ltd (“Thinktank”) for $10.9 million in cash consideration
  • Addition of a white label commercial property mortgage to AFG’s product offering with a strategic alignment with AFG’s commercial broking platform, AFG Business
  • Opportunity to increase Thinktank’s penetration of the market through AFG’s 2,900 strong broker network
  • Thinktank is expected to achieve profit after tax in FY18 of approximately $3.2 million
  • AFG has the right to appoint two directors to the Thinktank board and they will take up those positions immediately
  • Completion is expected to occur today following the transfer and confirmed receipt of consideration.

ME Bank ‘Forced’ to Hike Mortgage Interest Rates – More Banks Will Follow

More evidence of the rising costs of funds as ME Bank says it has lifted its standard variable rate on existing owner-occupier principal and interest mortgages, effective today, 19 April 2018.

ME’s standard variable rate for existing owner-occupier principal-and-interest borrowers with an LVR of 80% or less, will increase by 6 basis points to 5.09% p.a. (comparison rate 5.11% p.a.^).

Variable rates for existing investor principal-and-interest borrowers will increase by 11 basis points, while rates for existing interest-only borrowers will increase by 16 basis points.

ME CEO Mr Jamie McPhee said the changes are in response to increasing funding costs and increased compliance costs.

“Funding costs have been steadily increasing over the last few months primarily due to rising US interest rates that have flowed through to higher short-term interest rates in Australia.

“In addition, ME continues to transition its funding mix to ensure the requirements of the Net Stable Funding Ratio will be met, and this is also increasing our funding costs.

“At the same time, industry reforms and increasing regulatory obligations are increasing our compliance costs.

“Despite these increases ME’s standard variable home loan for owner-occupier principal-and-interest borrowers with LVR 80% or less, is still lower than the major banks as it has been since ME became a bank in 2001. In addition ME also continues to offer some of the highest deposit rates in the market.

“This was not an easy decision, but rising costs have forced us to reset prices to maintain a balance between borrowers, depositors and our industry super fund shareholders and their members, all while ensuring we continue to grow and provide a genuine long-term banking alternative,” McPhee said.

“We will continue to assess market conditions and make changes to prices to maintain this balance if necessary.”

More hikes will follow, across the industry together with reductions in rates paid on deposits as the fallout of the Royal Commission and higher international funding costs take their toll.

The 10-year US Bond rate is moving higher again, following some slight fall earlier in April. Have no doubt, funding cost pressure will continue to rise.

^Home loan comparison rates calculated on a loan of $150,000 for a term of 25 years, repaid monthly.

730 Does AMP, CBA At The Royal Commission

A segment broadcast 18 April 2018 discussing the issues raised in the inquiry, and shortcomings of the regulator.

More evidence of bankers behaving badly (on purpose) and regulators “asleep at the wheel”.

And remember the number of financial planners continues to increase..

Later in the evening, Matter of Fact went further into the structural issues arising.

Small Business Finance Roundtable

The Reserve Bank hosted a roundtable discussion on small business finance today, along with the Australian Banking Association and the Council of Small Business Australia. The roundtable was chaired by Philip Lowe, Governor of the Reserve Bank.

Small businesses are very important for the economy. They generate significant employment growth, drive innovation and boost competition in markets. Access to external finance is an important issue for many small businesses, particularly when they are looking to expand.

Our own SME survey highlights the problems SME’s face in getting finance in the face of the banks focus on mortgage lending.  The latest edition of our report reveals that more than half of small business owners are not getting the financial assistance they require from lenders in Australia to grow their businesses.

The aim of the roundtable was to provide a forum for the discussion of small business lending in Australia. The participants included entrepreneurs from the Reserve Bank’s Small Business Finance Advisory Panel along with representatives from financial institutions, government and the financial regulators.

The challenges faced by small businesses when borrowing were discussed. The entrepreneurs highlighted a number of issues, including:

  • access to lending for start-ups
  • the heavy reliance on secured lending and the role of housing collateral and personal guarantees in lending
  • the loan application process, including the administrative burden
  • the ability to compare products across lenders and to switch lenders.

The participants discussed a range of ideas for addressing these challenges. Financial institutions shared their perspectives and discussed some of the steps that are being taken to address concerns of small business. The roundtable heard some suggestions about how to improve the accessibility of information for small businesses about their financing options. The roundtable also heard from the Australian Prudential Regulation Authority regarding the proposed revisions to the bank capital framework that relate to small business lending.

The roundtable discussed some other policy initiatives that are currently underway, including the introduction of comprehensive credit reporting and open banking. Participants agreed that these initiatives could help to improve access to finance, and the Reserve Bank will continue to monitor developments closely.


The Small Business Finance Advisory Panel was established by the Reserve Bank in 1993 and meets annually to discuss issues relating to the provision of finance, as well as the broader economic environment for small businesses. The panel provides valuable information to the Reserve Bank on the financial and economic conditions faced by small businesses in Australia.

The Reserve Bank has previously hosted discussions on small business finance issues, including a Small Business Finance Roundtable in 2012 and a Conference on Small Business Conditions and Finance in 2015.

The Australian Banking Association, along with the Australian Council of Small business, representatives for member Banks and other stakeholders were also in attendance to bring their own perspective on the issues and to answer questions. The event was agreed to and organised at the end of last year.

Australian Banking Association CEO Anna Bligh said that the Roundtable was an important opportunity for Australia’s banks to listen first hand to the needs of small business.

“Small business is the engine room of the Australian economy, accounting for more than 40% of all jobs or around 4.7 million people,” Ms Bligh said.

“This Roundtable was an important step in building the relationship between banks, small businesses and their representatives.

“Banks are working hard to better understand the needs of business, their challenges and how they can work with them to help them achieve their goals,” she said.