MS - Justify RBA Linkage скачать в хорошем качестве

MS - Justify RBA Linkage

The Illusion of Cost in Primary Loan Pricing It is not widely known that when Banks create a loan, they also create a deposit from nothing, just keystrokes. To get a bank to justify a loans linkage to the RBA cash rate is like pulling teeth. Until the general public understand the fundamentals of loan creation, they will be used and abused. QUESTION TRANSCRIPT When AMP, an Authorised Deposit-taking Institution (ADI) creates a loan, it simultaneously creates a matching deposit through an accounting entry—essentially from nothing, via keystrokes. This process does not require a real depositor or external funding. Aside from capital adequacy requirements (as enforced by APRA) and operational costs, there are no direct funding costs at the point of loan origination. When the borrower draws down the loan—for example, to purchase a home—the bank may incur a short-term settlement obligation, typically influenced by the RBA cash rate. However, once the payment is settled (e.g., via the Exchange Settlement Account), the transaction concludes with the bank holding: • A loan (an interest-earning asset), and • A Loan-Linked deposit (a liability). At this point, the core transaction is complete. Any subsequent actions—such as raising funds through wholesale markets or securitisation—are optional funding strategies, not requirements of the initial loan creation. Therefore: • The specific loan’s initial funding cost is zero. • No external deposits or wholesale borrowings have been raised to “fund” the loan. • The loan has not been securitised. Despite this, ADI’s routinely adjust variable mortgage rates in line with movements in the RBA cash rate, throughout the life of the loan. This creates a pricing illusion: that loan interest rates must rise due to a “cost” pressure that, in the case of ADI created deposits, did not exist at inception and may never exist in practice. ________________________________________ Question for the AGM Where is these Loan-Linked Deposits represented in AMPs balance sheet? Can the Board explain why interest rates on loans—funded by deposits created by the ADI itself—are increased in line with RBA cash rate movements? Shouldn't pricing reflect actual cost inputs, rather than opportunistic alignment with benchmark rates that do not apply to the original transaction? Is it fair, appropriate, transparent, or honest to cite “funding cost pressure” as the justification for rate rises, when no such cost existed in the primary act of loan origination?