Mike Smith, ANZ’s chief executive, hit out at calls for banks to hold more capital.
It what sounds like an attempt at a “greater good” defence, Smith said that this would hurt the economy as the flow of funding has interrupted.
The AFR reports this morning that Smith, chairman of the B20 financing task force said that:
It is not just about banks, it is about the real economy – about corporations, business and individuals… It is one thing for a bank to complain about regulation but it is another thing for a corporation to say we are not getting finance because of this regulation that is being imposed on the banks.
Smith might be trying to say that there is a cost to the economy of more capital but the point of the Murray observation about capital is to ensure that the too-big-too-fail status of the bank doesn’t privatise profits and socialise losses.
Naturally a listed bank CEO would resist this because with more capital comes a cost to the business of holding that capital. More capital also reduces leverage so earnings per share are negatively affected – and in time, perhaps, the share price.
What Smith doesn’t take into account is that Murray has identified a greater good for the economy by ending too-big-too-fail and leveling the playing field for capital between smaller ADIs and the banks.
Murray’s report is only interim. The lobbying has begun.
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