/DEC 31, 2017/
Australia's "big 4" banks, dominating 83% of Australia's banking industry, stepped up their efforts to block crypto-currency trading and stem the outflow of customer cash this week, spiking a renewed wave of social-media condemnation.
Banking regulation in Australia requires banks to hold a minimum of 11% cash against loans they write, so as crypto-investors move their savings out of the banking system, those banks loose their ability to legally write new loans, or worse, fall into non-compliance with their reserve obligations.
The big-4 banks pay no interest (0%) to business accounts, while personal accounts earn from 0% to 1% annual interest and attract a range of fees and charges. Contrast this with cryptocurrencies, where bitcoin earned more than 1400% in 2017, and Ethereum earned above 8600% and it's clear to see why Australians have lost interest in keeping their deposits in their bank account. In just one year, a decent investment in crypto outstrips even an entire lifetime's investment in Australia's second-top performer: real-estate - a market that itself is seeing lower and lower returns, with widespread acknowledgement that it's also 30% overpriced, and on-path for a major correction in 2018.
APRA, the body responsible for setting the cash reserve limits, increased the reserve limit shortly after the GFC, as Australians fearful for their funds placed heavy pressure on cash withdrawals, forcing the Australian Federal Reserve to print billions in additional cash to prevent widespread customer panic. APRA added 1% to the cash reserve minimum to help ensure the banks survive the next rush.
Unfortunately, investigations reveal that interbank-loans accounts for more than 90% of their cash reserve requirements, and that when all these are taken into account, Australian banks are really only holding 1.22% in actual cash reserves.
To put that into perspective - for every $12,200 invested in bitcoin, the big-4 banks need to deny or call-in $1M worth of loans. That's money that traditional investors ordinarily need for buying more houses. Australia's real-estate market is already on thin ice - it's catch-22: because houses are so overpriced, interest rates need to be kept extra low, but because rates are low and houses are overpriced, investors are now turning to alternative and better performing investments, which means less money to write loans, less people to buy houses, less chance of making money (and much higher risk) for real-estate. Australia's housing market is so overpriced that investments in Crypto are arguable less risky.
So it's time for social media to stop blaming the banks for halting the outflow of cash into crypto: it's not their fault. Australia allowed banks to profit (and house prices to spike) off the back of "invented" money so long as banks hold a little bit back in cash. Now that Australia's real-estate-ponzi has reached 30% past it's breaking point, it's no wonder investors want their cash out.
Don't expect the majority of Australians to shed any tears: 2017 also marked the turning point in Australia's history where house prices became so unaffordable that more than 50% of the population will never in their lifetime be able to afford one. 2018 will mark an interesting reversal of fortunes in Australia, where "Safe" is not "Houses" anymore.
Submitted December 31, 2017 at 08:55AM by i_work_for_a_bank http://bit.ly/2DG2A6F
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