CBA, Westpac, ANZ and the NAB, collectively, are known as Australia’s “big four” banks.
However, “big” may not be the appropriate word to describe them any longer. Given the growth of their balance sheets in recent years, perhaps they should be known as Australia’s “gigantic four” banks.
The chart below, from LF Economics’ Lindsay David, compares the combined balance sheet of Australia’s “big four” banks as a percentage of Australian GDP.
As you can see, combined, they make up close to 220% of Australian GDP. In comparison, the balance sheets of America’s four largest banks – JP Morgan, Bank of America, Citigroup and Wells Fargo – make up just 48% of US GDP.
Even in isolation the CBA, Australia’s largest bank, has a balance sheet equivalent to 51% of Australian GDP, up from less than 15% 15 years ago.
That’s some incredible growth over just 15 years.
As a consequence of this rapid growth David ponders a question many have been asking themselves recently: “How do you save four banks holding assets the equivalent of almost 220% of Australian GDP on their balance sheet if the Australian economy goes belly up?”
It’s a good question, and hopefully one that never needs to be answered.
Still, given the ongoing debate about Sydney’s hot property market, it’s clear why many are concerned, including RBA Governor Glenn Stevens, about the potential risks that are forming.