Yesterday’s Profit Watch toyed with the idea that cryptocurrencies are going to invade and inflate Aussie property. That’s as buyers and sellers bypass the traditional financial system.
Today’s edition poses an even bigger question: Could the Aussie banks launch their own tokens to get in on this game?
Hey, don’t laugh. Every major property cycle sees some form of financial innovation.
Take mortgage-backed securities, for example. They came about after global regulators imposed capital constraints on the banks back in the 1980s.
The banks needed a way around these rules. What to do? Sell off your mortgages to somebody else! Ingenious.
Consider: Crypto is almost totally unregulated.
It’s an open field for the moment. And what’s happening across the Tasman must be ringing alarm bells for the big banks.
I doubt anyone else is bringing your attention to this story, but it’s vitally important.
The Reserve Bank of New Zealand is proposing a massive hike in the money banks must set aside in the event of a major downturn.
This is not a small issue. The top banks in NZ are subsidiaries of the big four here. Their problem is our problem.
And it’s expensive. It could cost the banks 70% of the NZ banking sector profits over the five-year transition period currently on the table.
That means less dividends or share buybacks for any Aussie bank investor, which is practically everyone in the country.
Point being: This is a giant pain in the rear for the banks.
That’s exhibit A in terms of evidence that the banks could look to get into crypto.
Here’s exhibit B.
Tim Gurner is a property developer who’s making a motza off the current cycle. He’s now a regular in the rich lists the mainstream media like to float around.
The Australian Financial Review cites him today saying that lower interest rates won’t help reflate the market.
That’s because access to credit matters more than the cost right now.
He argues APRA needs to get on with the task of bringing the serviceability ratio down.
Again, this is a regulatory hurdle for the banks, and not a market one.
The demand is there!
Why does this matter? Bank directors and executives work for their shareholders. The burden is on them to deliver growth.
That means they’ll always be pushing the rules, testing boundaries and exploring new ways of operating.
Here’s a point I picked up from reading about past property cycles: New technology often makes previous constraints put in place redundant.
There’s nothing quite as new as crypto.
Let’s think this through…
Banks don’t lend deposits in the current system as it is. They create the money from nothing.
There’s no practical reason they can’t do the same thing with a crypto token.
And whoosh! All these government regulations and restrictions would be redundant. They’re for a system that’s designed for the days of fax machines and car phones with cords.
Is this going to happen tomorrow? No. But it’s something to watch for, in some way.
That reminds me of something.
I attended an investment conference some years ago.
One of the presenters made the case that it wasn’t unreasonable to expect a banking stock like CBA to go to something like $300 per share.
How so? He was extrapolating the rise in the banks from the previous cycle (1994-2008) to the next one.
I was never that convinced of that line. But it’s not because I don’t think Aussie property will go into a massive bubble. That’s all but guaranteed with our idiotic tax system.
It’s because there’s so much disruption happening around the banks.
Just today there’s a report that the big US tech firms are highly likely to encroach on the payment system and chop out part of the banks’ lucrative revenue streams here.
History repeats, but never in such a way as to make it obvious how to monetise it.
My take: Watch for the banks to push back against these NZ rules. And if they fail to win that battle, they might decide all bets are off…and crypto is the way around.