Courtesy AFR 20 July 2011

The following 2005 letter gives the right impression if it shows I’m no real friend of the current operations of the RBA or APRA.  They like to react to events, rather than planning for them and making necessary suggestions to government that might facilitate their operational efficiency.

From The Australian Financial Review
www.afr.com Monday 21 November 2005:-

Home truths for RBA and APRA

Phil Naylor, the chief executive of the Mortgage Industry Association of Australia, argues that mortgage brokers should not have to “take the rap” for the poor quality of home loans (“Don’t blame the brokers”, Letters, November 18).

Mr Naylor is correct, of course, because this smacks too much of searching for scapegoats. The competition between banks and lending institutions to write home loans during property booms has a habit of getting out of hand, and this highlights a structural problem which needs to be addressed at a much higher level.

The creation and eventual bursting of land price bubbles has a history of bringing the Australian financial system to its knees at regular intervals, so the Australian Prudential Regulation Authority ought to be pressing for a federal charge on all land values if it is to be effective in tending to the health of the financial system.

In fact, APRA and the Reserve Bank of Australia need to get their heads together in order to demand of our politicians that the RBA administer an all-in flat-rate charge on land values. Such a charge should replace state stamp duties, payroll taxes and land taxes (the latter with their notorious thresholds, exemptions, aggregation provisions and multiple rates), and the revenue delivered, GST-like, back to the states. Maybe the charge ought also to replace the costly GST.

It is not the job of the RBA to hose down the economy by non-discriminating interest rates, but, as with APRA, it is its job to protect our financial system against the creation of property bubbles.

If the RBA tweaked a federal charge on Australia’s land values as assiduously as it has done with interest rates, both APRA and the RBA might finally begin to carry out their appointed duties, instead of seeking to put the blame elsewhere for the ritualistic lead-up to financial collapse.

– Bryan Kavanagh, Director, Land Values Research Group, Melbourne


Wasn’t it marvelous therefore to see the page one headline in THE AUSTRALIAN FINANCIAL REVIEW this morning: “Banks forced to plan for a crisis”?

The story tells how APRA has asked the big four lenders to draw up plans setting out how they would break up and sell off their businesses in the event of a financial crisis.

Excellent!  But I doubt that APRA instigated this measure: they’re not that creative. I’ll bet it was at the direction of the Financial Stability Board, set up in Switzerland in April 2009 after the G-20 Summit.

Never mind.  Reform is reform, even when it’s forced upon you.

This may be a case of it  being to our advantage that  Australia is one of the last cabs  off  the rank in experiencing a collapse in its land market, because the Financial Stability Board prefers a model that has shareholders, rather than taxpayers, responsible for bailing out banks who lend too much – even if they are our  ‘big four’.

This is a step in the right direction in exposing the myth that ANY bank is ‘too big to fail’.

I like it!


  1. Hmmm … Looks like I was wrong. The banks still seem to be competing hammer and tong for business in the declining residential mortgage market. Risk management is still out the door – because banks know they are “too big to fail” and as depositors’ accounts are guaranteed by the feds, they’ll be bailed out. [Sigh!]

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