Cash rate, loan rate, equity funding Essay Example | Topics and Well Written Essays - 1000 words

Cash rate, loan rate, equity funding - Essay Example This can be attributed to the increased cost of debt funding for the major banks in Australia. Study of major banks’ fund composition shows that the banks are shifting their focus towards deposits and long term borrowings more and there has been a decline in share of short term debt in banks funding. Amongst others, higher deposit rates have contributed significantly towards increase in debt funding costs for banks. Although the share of equity has also increased in the banks’ funding composition but it has not contributed much towards changes in housing loan rates, since they are less risky. Until recently, in 2011, the spread between standard housing loan rate and cash rate has reduced by about 10 basis points due to the increase in discounts offered by the banks on new mortgages, but it’s only a small reduction compared to the overall spread. Table of Contents Table of Contents 3 Widening of the spread between the major-banks standard variable housing loan rat e and the RBA’s cash rate since 2007 4 RBA’s Cash Rate 4 Variable Housing Loan Rate and Cash Rate 4 Composition of Banks’ Funding 5 Cost of Debt and Equity Funding 5 Pricing for Risk and Banks’ Housing Loan Rates 6 Conclusion 6 List of Graphs 7 References 10 Bibliography 12 Widening of the spread between the major-banks standard variable housing loan rate and the RBA’s cash rate since 2007 RBA’s Cash Rate The key objective of RBA’s monetary policy is to lower the inflation rate, targeting around 2 to 3%. Other objectives of RBA’s monetary policy include low unemployment rate and maintaining a stable growth of Australian economy. Cash rate is the primary tool which is used by RBA to regulate the monetary policy in the country. It increases target cash rate when the inflation pressure is in excess of the RBA’s target and it decreases the target cash rate when the economy can grow at a faster rate without creating any infla tion problem (Lowe, 1995, p. 3-15). If we look at the history of RBA’s cash rate, it can be inferred that there has been a steady increase in cash rate from 2007 till mid 2008, which was the beginning of Global Financial Crisis (GFC). Then there was a sharp decline in cash rate during the period of mid 2008 till April, 2009. The cash rate was as low as 3% and continued to be so till September, 2009. Since October, 2009, there had been a steady increase in cash rate (Graph 1). Until recently there had been minor cuts in cash rate and is at 4.25%, as of today (RBA, n.d.). Variable Housing Loan Rate and Cash Rate The trend of standard variable housing loan rates is believed to follow the trend of cash rate. It is so because the household cost of funds are driven by the cash rate. If we compare the standard variable housing loan rate with cash rate, we find an overall strong correlation between these two rates over the years but with some anomalies in between (Graph 2). If we wat ch closely, it can be found that there has been an increasing spread between the major bank’s standard variable housing loan rate and the cash rate since 2007. This increase in variable housing loan rate by major banks relative to the cash rate can be attributed to the increase in bank’s cost of debt funding. In addition to this, higher equity funding costs and increase in expected losses have also attributed to this widening of spread between the two rates. Until recently, in 2011, the spread has reduced by about 10

Social Unrest, Political Disorder and the State Essay

Social Unrest, Political Disorder and the State - Essay Example Such easy formation came as a result of the isolation which Ireland had due to its geographical location. Just like any organized crime group or a terrorist group, the IRA has a method of operating in a hierarchical manner with exclusive membership and explicit rules (Mahan and O’Neil 1998, p.6) Although, IRA does not consider itself to be an organized criminal group in any way, neither as a mafia of any sort, but when analyzed closely, it does appear to have a historical background of being involved in criminal activities and terrorism. But they have evolved from merely a rural peasant protection group to a secret society which constantly challenged against the status quo. According to Mackenzie, there are different agendas which secret societies have, ranging from spiritual, moralistic, patriotic, and political to criminal activities (Mackenzie 1967). The IRA has experienced a similar process of evolution over the years and operated in a corresponding manner in each of the c ases as per circumstances. Furthermore, the IRA shares organizational characteristics which befit only criminal business groups with much focus diverted towards their political goals (Bell, 1997). For the purposes of analyzing the IRA and its methodology, ethnographical research method is deemed to be most appropriate. According to Hobsbawm’s observation (1969), in any oppressed society, there is always to be found a minority group which is willing to devote itself to rebelling against the status quo. In that, some people will choose positive methods and some will be inclined towards illegal means to achieve the same end. One feature that stands out in the IRA is that it was basically formed to raise a solemn voice against oppressing conditions of the peasants in Ireland and the high degree of feudal practices to suppress the masses There was massive unrest especially after the forceful 1800 Act of Union was passed by Westminster to create United Kingdom, which ended up bindi ng Ireland under its rule. This is a significant curve at the point of which the peasant protection group was compelled to take political action (Toolis, 1995). As there increased the number of peasants willing to fight for the political cause they all believed in, the need for more organized formation arose and hence, the IRA was formed. ‘The Whiteboys’ and ‘the Oakboys’ along with ‘phoenix’ were a precursor in Ireland for forming such hierarchical groups for cohesion and organization with enhanced sophistication. It became a sub-culture within a sub-culture (Lambart, 2010). Something that gives them authority is their ability to monopolize violence in their respective communities. Traditionally, Ireland is known for its familial unit and camaraderie, hence the rise of the IRA has its roots in such a background. Those who were out of any secure means for livelihood sought shelter in such organizations for mutual protection (Collins, 1986). The modus operandi of the IRA depends on the kinship and friendship networks that it has developed through practicing its hold on its community. If there is kept no check from the government’s side on their activities, they spread their values and ideologies very easily. Even there had been such fortunate historical events in favor of the IRA where their sub-culture has proliferated with changing