APRA Watch:   Non-bank lenders?  “LOOK SQUIRREL!”

Michael Pascoe spent some time last week arguing that having APRA do something useful for a change,  i.e. restrict unproductive credit creation by our big 5 taxpayer guaranteed banks, was a bad idea because that would allow more opportunities for non-bank lenders to gain market share.

The big 5 banks’ spin departments must love this kind of article.  They can take the afternoon off.

Another week and the same old thing.     APRA needs to chase non-bank lenders.

Good grief do we need any greater sign that APRA have no intention of doing anything of substance and by that I mean anything that will seriously put our inflated asset prices, and the cheap unproductive credit hose that maintains them, at risk?

The important thing to remember is that non-bank lenders at least have to acquire their investments funds from investors who want to take a punt. Non-bank lenders are NOT banks and funny enough that actually means something.   The non-banks are collecting capital and applying it. They follow the lead of the banks and that lead, fully permitted and encouraged by   APRA and the RBA, has been clear, pump up the prices of residential assets of all shapes and sizes in pursuit of the fabled wealth effect.

Providing the investors in non-bank property lenders are NOT the banks directly or indirectly do we really care if they want to make dud investment decisions?

Pascoe reckons it is ‘ironic’ that much funding for non banks comes from the real banks. Ironic? That just makes my point perfectly. If there is a problem it is an ADI bank credit creation problem……yet again.

That the non-banks still see a buck in property speculation tells you all you need to know – there is still a buck in property speculation.  But whose fault is that?

Why suppress the little switched on financial sector yellow canaries?  Liberty and their advisors are hungry and smart and don’t like to lose a buck.    How about APRA regulating the big 4 banks credit creation / lending properly?

Oh sorry of course that hasn’t worked has it…….just by accident of course ….the RBA really were trying so very hard to work with APRA to prevent unproductive Big 4 bank lending. Trying hard? Snort!

Yep, cutting target rates and allowing another burst of offshore lending since 2013 is very very action orientated.   A green light wrapped in limp lettuce.

The problem we have seen over the last 20+ years has not been private parties punting with their OWN money.

The problem has been that our private licensed ADIs – aka known as licensed Banks and especially the Big 4 – have been directing vast amounts of bank credit to unproductive purposes.

If anyone is still struggling with the definition of an unproductive purpose for private bank credit creation it is nothing more than something that does not directly and clearly add to the productive capacity of the economy.

Large loans for existing residential property fits the ‘unproductive’ bill perfectly.

Use whatever ball and chain you like but all that was (and still is) required is to impose lending regulations by reference to the nature of the security for the loan.  If the security has a new house smell it is probably productive. If it smells like the last fabulous century or is riddled with asbestos it does not warrant more than a sprinkle of the magic of private bank credit creation

Existing property – borrow less with more restrictions and at a higher price.

New property – allowed to borrow more at a lower price and with less restrictions.

Pretty simple isn’t it?  Sadly much too hard for the asset bubble fluffers at the RBA and APRA and in government.

To make matters worse, as local appetites for unproductive credit started to fade – notwithstanding the attractive CGT and owner occupier tax breaks, the local banks were encouraged/allowed to go offshore in search of even cheaper sources of funds to drive mortgages rates even lower and keep the demand for unproductive speculative loans as strong as possible.

APRA chasing the non-bank lenders is about being seen to do something while doing sweet fat nothing beyond a few bits of parsley in the window.

Will we ever learn?

This is an extended wide screen version of a comment made at macrobusiness.com.au

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