At the heart of the saying “having your cake and eating it too” is the physical impossibility of the desire to do both things. We use it when explaining to people that they cannot have things both ways.
Don’t tell it to three of Australia’s big home loan lenders who Australian Banking and Finance reports want access to the RBA’s cheque book but don’t want to play ball with the new data requirements the RBA is instituting.
Earlier this week we outlined the new rules the RBA has put in place for banks that would seek to borrow money from it during a liquidity emergency, when their very solvency is threatened.
We highlighted that bank transparency about the strengths or risks of the securities they wish to give the RBA in order to gain access to emergency support – residential mortgage-backed securities – was also a very important macro-economic tool.
Transparency would bring its own self-regulation on bank mortgage book risk management in a way that the current opaque processes do not. With “permitted users” like fund managers, regulators, information providers, and academics, able to access the data, there would be a level of real-time oversight and a health check of the Australian economy and the home loans that underly the vast majority of Australian bank, building society and credit union balance sheets.
RBA Assistant Governor Guy Debelle, who is responsible for both the RBA’s new rules and the emergency facility the banks may one day access, said on Monday the provision of this data was important because:
The required information, which must also be made available to permitted users, will promote greater transparency in the market, supporting investor confidence in these assets. These requirements will also provide the Bank with standardised and detailed data on ABS, which are a major part of the collateral eligible to be used under the CLF.
But AB&F reports that three of the large banks don’t want to comply with Debelle’s new rules and have “brought in high-powered lawyers to argue that the data could be released into the ether or some of the mortgagors could be identified. Yet the banks already provide similar data to the ratings agencies that they pay to rate the RMBS and it is more than two years since the RBA announced measures addressing the banks’ security and privacy concerns.”
That’s curious. What reason could a large Australian lender have for not wanting to give the RBA or permitted users access to de-identified collateral data? Privacy is a relevant objection. But the RBA wants the banks to de-identify the data before it is provided to them or the permitted users. So that objection rings hollow.
AB&F suggests it might have something to do with the quality of the home loans in some of the residential mortgage backed securities the banks would be using to access emergency liquidity. But this also rings hollow, given that the banks give similar data to credit rating agencies like Moodys, Fitch and Standard and Poors yet still retain some of the highest ratings amongst global banks.
But a large part of that rating is actually the implicit guarantee the Australian federal government, and taxpayers, give the big banks via their too big to fail status.
Perhaps this is the key. These three big institutions know that their rating, and hence their cost of funds and in the end return on capital, rests with implicit government support.
If Australian banking is a solid as it looks, and as solid as we are lead to believe by Australia’s banks, then providing this information to the RBA should be no issue.
That’s likely why Guy Debelle deviated from his script on Monday and said pointedly to the recalcitrants – no data, no emergency liquidity and no access for you or your clients to the RBA for cash on these securities. Even in good times.
You can’t eat your cake and have it too.