How powerful are the Australian banks?
The banks in Australia hold a lot of power. Why? Because they hold a considerable amount of assets. When we talk about banks, we need to also consider all the other financial institutions as well.
The distribution of multi hundreds of billions of dollars across the financial institutions has changed over time. During the period 1990 to 2008 securitisation vehicles experienced substantial growth, only to suffer a considerable decline after the GFC. Securitisation vehicles are those who are in the money market corporate scene distinct from the capital market corporate scene.
Money Market Corporation share of total assets fell from about 7% to about 2%, on the other hand the percentage share of total assets held by superannuation funds almost doubled. The percentage share of total assets held by securitisation vehicles increased from less than 1% to more than 6% before the GFC. However, after the GFC the percentage share of total assets held by securitisation vehicles fell by about half. This was at the expense of the share gained by commercial banks that continued to grow. The percentage of total assets held by superannuation funds also showed continued growth.
The reason for the securitisation vehicles decline is that their share has dried up after the GFC.
By the way, capital market is important, as the nation’s economy growth is dependent on companies and entrepreneurs need to develop new innovations or inventions by raising capital to bring the new products or services to the marketplace.
Companies have the choice to raise equity versus raising capital to develop their new developed products or services. When considering their options, companies must assess the risk, return, liquidity and time pattern of the cash flows associated with their projects and their finance.
Banks play an important part of steering the economy of the nation.