I was pretty proud of the column I wrote with Mark Bouris on a new vision for banking over at the ABC's Drum (republished elsewhere too). We got a lot of good feedback from a lot of senior people. Amongst a few new policy proposals, we also outlined this puzzle for the first time:
In all properly-functioning financial markets there is an inexorable trade-off between risk and return. The higher the risks you take, the higher the returns you generate. But in Australia this maxim has been turned on its head: in Australia, the supposedly lowest risks banks with the highest credit ratings — the majors — are somehow able to yield the highest shareholder returns. In contrast, the smallest banks, with the lowest credit ratings, produce much lower returns on equity. This complete reversal of the inverse relation between risk and return is the purest possible illustration that taxpayer subsidies are being used for the benefit of the banking oligarchy to the detriment of meritocratic democracy.
I've written as much about banking policy as anyone in Australia, and I have never seen this puzzle posed this way before. Its value is simply in demonstrating that something very wrong is going on with banking in this country. So the SMH's Jessica Irvine today dedicates an entire column to outlining the puzzle, but does not reference us. It is kinda odd, since it would have been a very easy thing to do...I know I write for rival publications, but this was run with the ABC.
