APRA Watch:  Bank regulation by smoke and mirrors

Today on another excellent Deep T journey down through the house of mirrors that is APRA’s regulation of Australian private bank credit creation.

Unquestionably absurd.

If a casual observer thought this APRA regulatory stuff was impenetrable and made their head hurt it would be for good reason.

Source of the problem

The problems arise the moment that you accept that the IOUs or promises of a group of private organisations should be given a privileged or protected status that has real value. The moment you do that you have created an incentive for those organisations to create as many of those IOUs or promises as possible or they can get away with.

Gaming the regulations that apply to the privilege is core business for private banks.

He who games best WINS!

It is as simple as that.

We can dress up the process of regulating this banking ‘privilege’ with believable bulldust and all manner of technical terminology about reserve ratios, leverage ratios and capital adequacy and Basel this and Basis that but at the end of the day it is all just tumour and parasite management.

They are all just attempts to ‘manage’ something that is fundamentally absurd.

This is not a new revelation.  The dangers inherent in granting a privilege to private banks was well understood 80 years ago when the last Royal Commission into the role of banks was held.

Tell me again, why do banks have a privileged status?

Keep in mind that the only rationale (other than the corrupting power of banking sector political donations) for extending the special privilege to private banks was / is the belief that doing so would encourage more productive investment, in other words more expansion of the productive capacity of the economy than would otherwise be the case.

But what has granting the privileged delivered? A massive bloated debt driven bubble in the prices of existing assets.

Those housing bubbles in Sydney and Melbourne and to lesser extents across Australia are no accident.  They are largely the product of letting private banks off the leash over the last 35 years.

Eradication, removal and excision are the treatment methods that are required.

At the very least tax them for some of the privilege they receive as Mr Morrison in Canberra and South Australia plan to do. Just be careful of developing an addiction to these revenue crumbs as they pale against the economic control that has been handed to the private ‘credit as public money’ club.

Reform is not a matter of choice

I appreciate that such reform sounds drastic, and yes it will encourage all the usual bank apologists – you know who they are – to fly down screeching from their belfrys and other roosts to warn that even investigating their business practices by Royal Commission will be the end of life as we know it , but they are not difficult reforms and reform is inevitable unless we intend to surrender power to those countries who are not yet so debauched to have forgotten the difference between the productive and the unproductive allocation of scarce resources.

We can spray our resources at house price speculation and consumer comforts or we can apply them to things that build a stronger more productive Australia.

There is only so much of Rome still left to burn while we fiddle.

Categories: Macrobusiness

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s