Chris Joy writes in this weekend's AFR as follows:
Every borrower who fails to meet their obligation to service a loan threatens the safety and security of Australian depositors' hard-earned savings. And since a large bank's equity capital is typically leveraged 19 times, it does not take many loans to go foul before they risk blowing up these institutions, as we learned during the global financial crisis.
If just 5 per cent of CBA's total credit exposures were written off, this would completely wipe out CBA's $45 billion of equity capital that safeguards depositors from the prospect of losses incurred in bankruptcy. (Only around half of all bank deposits by value get the benefit of the government guarantee.) The recent Australian political impulse to push banks to be softer on bad borrowers – an artefact of the absence of any recession, and hence near-death banking experiences, for 27 years – transfers wealth from the prudent majority to this spendthrift minority while also raising the probability of banks going bust.
After decades of highly providential prosperity, Australians appear to have forgotten that the GFC was brought about by loose lending standards – as manifest by the boom in sub-prime lending