The perception that they are 'too big to fail' has encouraged Australia's big four banks to take risks that would exacerbate a housing downturn.
That’s the view of a banking expert at the University of Sydney Business School Eliza Wu, who believes government support has led to excessive lending by the banks, especially to home buyers and property investors, resulting in high property prices in major cities.
The associate professor says the big banks have been able to access more deposit funding at a lower cost of funds.
This has led to them being more inclined to lend in larger volumes and at cheaper rates in order to increase their market share and forced other finance providers to follow suit just to remain competitive.
“Under these circumstances, a significant downturn in housing prices could lead to household defaults and widespread losses throughout the banking sector,” Dr Wu warns.
The big four hold about 90 per cent of all banking assets in Australia and despite the recent political tensions between them and the state and federal governments, they are viewed as too systemically important to be allowed to collapse, she says.
Another crisis could be averted if shareholders demand banks retain “larger capital buffers and above the minimum capital requirements”.
“Our research shows that the banks that are better capitalised seem to do better in that their risk-taking behaviour is more restrained,” Dr Wu said.