Day 549: 'Casualty of disruption'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 549.
Today in summary: A consortium including Facebook announced overnight it would launch a digital currency; APRA today released its quarterly reports on authorised deposit-taking institutions; and ASIC will make insurers pay a total of A$130 million in refunds for worthless add-on vehicle insurance.
-- Alex
@AlexESampson
Current banker panic level: 🤑🤓😡
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A consortium including Facebook, Mastercard, Visa, PayPal, eBay, Uber, Spotify and Vodafone announced overnight it would launch a cryptocurrency called Libra next year as part of Facebook’s wider efforts to expand beyond social networking and into e-commerce and global payments. The platform will be held within a digital wallet called Calibra which would provide access to real-time payments anywhere in the world, and has left regulators scrambling.
The Libra Association plans to roll out “a simple global currency”, which uses blockchain technology, in the first half of 2020. The Libra Association says it is “an independent, not-for-profit membership organisation headquartered in Geneva, Switzerland”.
The group has also released a white paper explaining the specifics of the payments platform and digital wallet.
APRA today released its quarterly reports on authorised deposit-taking institutions. The reports looked at ADIs' financial performance, financial position, capital adequacy, asset quality, liquidity and key financial performance ratios. Net profit among ADIs was down 4.7% from A$36.4 billion in March 2018 to A$34.7 billion in March 2019. Total assets were up 3.4% from about A$4.6 billion in 2018 to A$4.8 billion in 2019. Total commercial property exposures were up $4.6%.
Over the past 12 months the customer owned banking sector's housing loans increased by 8% while the major banks grew by 2.6%. The Customer Owned Banking Association said consumers were continuing to look beyond the 'big four' with the APRA data showing consumers were choosing customer owned banking institutions over the investor owned banks.
ASIC will make insurers pay a total of A$130 million in refunds for worthless add-on vehicle insurance. It today announced it had secured a further A$14.7 million in remediation by six more insurers. The regulator encouraged consumers to check their car or motorcycle loan contracts to see if they held add-on insurance with Aioi Nissay Dowa Insurance, Eric Insurance, Sovereign Insurance, Virginia Surety Company, LFI Group or NM Insurance.
More than 30,000 additional consumers will be compensated for the sale of these insurance products, bringing the total to over 245,400 consumers. The refunds relate to products such as Guaranteed Asset Protection and Mechanical Breakdown Insurance (also known as Extended Warranty), where consumers were unlikely to ever receive a payout if they made a claim.
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Today’s burn prize: ASIC commissioner Sean Hughes
“The failures highlighted by these insurers demonstrate why new design and distribution obligations - passed by the Parliament in March 2019 - are so important. ASIC will continue to monitor this sector to make sure the unfair practices of the past do not return.”
Hughes was referring to the regulator’s new latest crackdown on junk add-on car insurance, often sold in car yards.
The Commentariat
Facebook’s “daring” foray into currency is part of a plan to build a whole new financial system, writes Stephen Bartholomeusz in the SMH.
“The prospect of banks being dis-intermediated, central banks sidelined and the role of fiat currencies diminished could be strengthened if the other big US technology companies such as Google, Amazon or Apple either join the Facebook partnership or, more likely, replicate it. It is either an exciting prospect or a disturbing one, depending on whether you are a beneficiary or casualty of disruption.”
The government can do more for the economy with new policy to support the economy than the central bank can, writes Perpetual Investments head of multi asset investment strategy Matthew Sherwood in the AFR.
“Despite their unbridled success, there is no doubt the RBA’s role in guiding the Australian economy in the next decade will be greatly diminished given their lack of traditional policy ammunition and the massive volume of leverage already in the system.”
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