More capital needed to avoid mortgage risks... Financial system ill-equipped to deal with climate change... Aussie homes undervalued by nearly a third...
Mortgage risk a factor for Big Banks short of capital
The Australian Prudential Regulation Authority's international capital comparison study concludes that Australia's big four banks need to bolster their overall capital by 200 basis points or $24 billion in order to be "unquestionably strong", according to an article in the Australian Financial Review.
About half of that additional capital is needed to cover changes to the risk weights for mortgages thanks to a tougher stance being taken by APRA and by the Bank for International Settlements (BIS) in Switzerland.
Because banking is a highly leveraged business, according to the article, and there are few things more leveraged than lending money on an Australian residential mortgage. It is generally accepted that the big four banks can turn $1 of capital into $70 of home lending.
The banks will have about a year to add this $12 billion in overall additional capital. There are many ways to raise that capital including dividend reinvestment plans, selling assets and full-blown capital raisings, the study reads.
Financial system ill-equipped to deal with climate change
Australia's financial system is ill-prepared for the impacts of climate change, an issue ignored in the Abbott government's inquiry led by David Murray, according to an article on SBS.
In the new study, the Climate Institute in a new discussion paper warns of the threats to Australia's banking, insurance and superannuation sectors.
The report warns that with two-thirds of banks assets tied-up in residential property mortgages they have a high exposure to the effects of climate change in a country which has mostly coastal dwellings.
It says many Australian properties are under-insured, particularly those considered to be vulnerable, and banks have "limited visibility" of their exposure due to the lack of property insurance verification beyond the first year of a mortgage.
Aussie homes undervalued by nearly a third
Forget bubbles, Australian homes are severely undervalued according to a senior figure from the Reserve Bank of Australia. Speaking at the Australian Conference of Economists in Brisbane last week, RBA senior research manager Peter Tulip said the preliminary results from research he had co-authored showed that homes are in Australia are undervalued by 30 per cent.
Dr Tulip said the figure, which was not the official stance of the RBA, was the result of research that compared the cost of renting and buying identical properties.
“We find that owning a house costs 30 per cent less than renting," Dr Tulip said. "That is, houses are 30 per cent undervalued.”
According to the research, owning a home bought in April this year would likely have an annual cost of 2.7 per cent of the home’s value, while the annual cost of renting the same home would be 3.9 per cent of its value.
The Australian Prudential Regulation Authority's international capital comparison study concludes that Australia's big four banks need to bolster their overall capital by 200 basis points or $24 billion in order to be "unquestionably strong", according to an article in the Australian Financial Review.
About half of that additional capital is needed to cover changes to the risk weights for mortgages thanks to a tougher stance being taken by APRA and by the Bank for International Settlements (BIS) in Switzerland.
Because banking is a highly leveraged business, according to the article, and there are few things more leveraged than lending money on an Australian residential mortgage. It is generally accepted that the big four banks can turn $1 of capital into $70 of home lending.
The banks will have about a year to add this $12 billion in overall additional capital. There are many ways to raise that capital including dividend reinvestment plans, selling assets and full-blown capital raisings, the study reads.
Financial system ill-equipped to deal with climate change
Australia's financial system is ill-prepared for the impacts of climate change, an issue ignored in the Abbott government's inquiry led by David Murray, according to an article on SBS.
In the new study, the Climate Institute in a new discussion paper warns of the threats to Australia's banking, insurance and superannuation sectors.
The report warns that with two-thirds of banks assets tied-up in residential property mortgages they have a high exposure to the effects of climate change in a country which has mostly coastal dwellings.
It says many Australian properties are under-insured, particularly those considered to be vulnerable, and banks have "limited visibility" of their exposure due to the lack of property insurance verification beyond the first year of a mortgage.
Aussie homes undervalued by nearly a third
Forget bubbles, Australian homes are severely undervalued according to a senior figure from the Reserve Bank of Australia. Speaking at the Australian Conference of Economists in Brisbane last week, RBA senior research manager Peter Tulip said the preliminary results from research he had co-authored showed that homes are in Australia are undervalued by 30 per cent.
Dr Tulip said the figure, which was not the official stance of the RBA, was the result of research that compared the cost of renting and buying identical properties.
“We find that owning a house costs 30 per cent less than renting," Dr Tulip said. "That is, houses are 30 per cent undervalued.”
According to the research, owning a home bought in April this year would likely have an annual cost of 2.7 per cent of the home’s value, while the annual cost of renting the same home would be 3.9 per cent of its value.
