Mr Joiner also warned of extra costs as a result of global capital and liquidity reforms to cut the risk of another financial crisis.

With short-term wholesale funding no longer an option under the new rules, NAB had to raise a further $45 billion-$50bn of long-term debt just to maintain the size of its loan book, let alone grow it, he said.

“So I think we’re going to go through a period where access to credit, possibly, and certainly the cost of credit, will be more difficult,” Mr Joiner said.

“That’s the real challenge, and if we don’t deal with it, we won’t have a AAA system, and we won’t have AA banks, and we’ll pay the consequences.”

The NAB finance chief also intensified the push for tax relief on deposits, in line with concessions offered to other asset classes such as superannuation.

This, he said, was the key to a lasting resolution of the banking system’s structural weakness — too much reliance on more volatile offshore funding.

Mr Joiner said Canadian banks now had cheaper access to global funding markets, despite their lower credit ratings, because they had access to a deeper pool of domestic deposits.

Domestic savings rates, he said, had not kept pace with credit growth. Nearly all the growth had come from offshore debt, with major bank liabilities spiking from 7 per cent of assets in 1990 to 24 per cent last year.

“This represents a long-term structural challenge for Australia’s economy and our ability to fund economic growth, create wealth and improve national living standards,” Mr Joiner said.

Responding to a question, he sounded a sombre note on housing prices, saying they were unlikely to rise because prices were “out of step” with international trends and affordability was very low.

The commentary is likely to annoy Commonwealth Bank and Westpac, which have much larger mortgage books than NAB.

The Sydney-based banks have often argued that the domestic market is supported by strong migration and a shortage of housing stock. But Mr Joiner said that when he advanced such arguments to international investors, they responded that he sounded like the CFOs of Irish banks.

“People will realise that taking a 2 per cent pre-tax yield on renting a house that isn’t going up in value doesn’t make sense if you are paying 7-8 per cent for the associated loan,” he said.

People were likely to “fall out of love” with property, as they would with equities, with offshore investors generally of the view that local stocks had “had their run”.

Credit growth of 15 per cent-plus was seen as a thing of the past, and the mining boom was largely “priced in”.

Mr Joiner predicted a re-allocation towards fixed income.

As to the impact on housing bad debts, he said it was “possible” loss rates could tick up from their extraordinarily low level of 0.04 per cent of the home-loan book.

“But we don’t see a major correction (in housing prices),” he said. “We see it languishing for a while.”

Mr Joiner also expressed a strong view on environmental biodiversity, arguing there was a failure to recognise its importance in business value and risk. Currently, there was an ad hoc examination of issues like carbon and water allocation rights. “Biodiversity brings all the environmental issues into one measurable place.”

Dublin will outline plans for a “credible banking structure” tonight when it publishes the results of stress tests that are expected to signal the effective nationalisation of the entire financial system.

Finance minister Michael Noonan is due to address parliament after the results of the tests are announced.

Enda Kenny, the Taoiseach, told parliament that Mr Noonan would “outline decisions that are being taken by government in respect of preparing for the results of the stress tests and in taking definitive steps to ensure that we have a strong, working, credible banking structure”.

Ireland’s new Government, the International Monetary Fund and the European Union all hope that the results will allow the country to put a final figure on the cost of dealing with its banking crisis and persuade investors that it can avoid another damaging restructuring.

Local reports have said this week that Ireland’s four viable lenders, Irish Life & Permanent, Bank of Ireland, Allied Irish Banks and EBS Building Society, will need between €18 billion ($24.6bn) and €23bn in extra capital after the stress tests.

This would be less than the €35bn it was once feared would be the cost of propping up the country’s banking system, but would increase the bill for the bailout to €45,000 per taxpayer.

Ireland’s Enterprise Minister Richard Bruton said the stress tests were needed to draw a line under the crisis.

“Afterwards, there can be no feeling that people are looking at Irish banks through rose-tinted glasses … Our ambition is to clean the table and we will do that,” he said.

In a further blow to the country’s recovery, share-dealing in Irish Life & Permanent, the troubled banking and insurance group, was suspended in Dublin and London yesterday amid speculation that it too might have to be taken under state ownership.

The shares collapsed by 46 per cent on Tuesday to less than €0.41, after reports suggested that the Irish Government was poised to inject huge sums of rescue capital into it.

ILP is the Republic’s biggest mortgage lender and supplier of private pensions.

While its pensions and insurance arm Irish Life is profitable and strong, it has been dragged down by its banking arm.

RTE, Ireland’s national television network and broadcaster, reported the stress test on ILP would reveal a need for immediate capital of €600 million to €1.2bn.

“Increasing use of offshore markets makes us vulnerable to shocks and is progressively increasing our cost of funds … and so customer interest rates,” Mr Joiner told a business lunch in Melbourne.

Mr Joiner said the tax treatment of deposits should be part of the federal government’s tax forum in October.

“Better tax treatment for Australian savers would be good news for savers, good news for borrowers and good for Australia,” he said.

Under normal circumstances, the appointment would have been for a five-year term.

The official statement is likely to say Mr Murray had asked for the shortened term, but this will be treated with some scepticism.

Still, he gets to stay until the new chief executive is appointed and will handle the transition.

Just who gets to run the Future Fund full-time is yet to be decided.

Two newcomers were appointed to fill the gap left by Trevor Rowe’s departure and Mr Murray’s imminent exit, while former Suncorp boss John Mulcahy was reappointed for four years.

The newcomers are economist Carol Austin, named for a four-year term, and Goldman Sachs executive Stephen Fitzgerald, who has been asked to serve for five years.

Under the draft, banks will be limited to holding 8 per cent of their total assets in the covered bonds.

Treasurer Wayne Swan in December gave the green light for covered bonds in Australia, a decision which requires a change to existing legislation ranking depositors above all other creditors.

Covered bonds are common in Europe but Australian financial institutions haven’t been able to issue them because domestic law requires banks to place depositors above all other creditors in their claims on assets.

Australia regulators have in the past expressed worries the bonds would subordinate depositors as they typically give the bond buyer recourse to both the issuer and the pool of mortgages or other secured collateral that stay on the bank’s books and “cover” the bond.

The biggest domestic banks have been driving a push to convince politicians to change legislation in the wake of new global prudential rules, known as Basel III, which require lenders to hold more high-quality assets on their balance sheet.

They say this type of debt would let them diversify their funding sources, lengthen their average debt maturity in line with regulatory rules, and increase lending competition.

Mr Norris told the Credit Suisse Asian Investment Conference in Hong Kong it was a positive decision by the government to set the covered bond cap at 8 per cent of net assets, after initially indicating it could be 5 per cent.

Mr Norris said the funding pressures of Australian banks were beginning to ease as Australian consumers begin to save more which has boosted the retail deposit component of banks funding.

However, he said, the banks, regulators and the Treasury were examining more ways to increase the funding instruments available to the banks.

The CBA, Australia’s largest bank by market capitalisation and biggest home lender, funds about 60 per cent of its mortgage book from its retail deposit base.

“It’s a good initiative by the government,” Mr Norris said.

“At 8 per cent I don’t think it will cause any problems as far as depositor priority is concerned, (as) there is going to be a very healthy margin.

“I was pleased to see it was set at 8 per cent, that’s a good number, some people wanted 10 per cent.

“I think we need to ask, ‘Does this solve the funding requirements of the Australian banks?’ Not in itself. We have to look at other opportunities for potential solutions.”

Mr Norris told the conference of international fund managers that lending growth would remain subdued in Australia, especially among consumers and domestic corporates.

He forecast that housing growth would grow at “mid to high single digits” compared to up to 15 per cent before the global financial crisis.

The CBA, he said, would begin to “dial up” its mortgage growth after deliberately slowing the rate of new home loans over the past 12 months.

The bank recently weighed into the competition war, sparked by the National Australia Bank, by offering a low-cost fee-free home loan.

Mr Norris said he did not think a “pricing war” was underway which would jeopardise the retail bank’s earnings.

Peter Fitzgerald, for Mr Emini, told the court that the case against his client had been “resolved”, and that an agreed statement of facts would now be prepared for a plea hearing.

He stressed it was a complex matter involving 34 lever-arch files.

The court also heard that the prosecution of Anthony Blumberg, a fellow Opes director charged with four counts of breaching his duties as a company director, was also heading towards a resolution, after prolonged negotiations.

Lawyers for Mr Emini and Mr Blumberg have previously said their clients were having talks over guilty pleas to less serious charges than those laid by the Australian Securities & Investments Commission.

However, counsel for Julian Smith, the third founding Opes director who also faces four counts of breaching his duties, said his client would go to trial.

Mr Smith was committed to stand trial after a hearing in Melbourne Magistrates Court earlier this month. The charges he faces relate to knowledge of a deficit in the Opes-related company Riqueza Holdings, which was registered in the British Virgin Islands.

All three men appeared in court yesterday, three years after the failure of Opes in March 2008 left about 600 clients owed $630m.

Mr Emini, who faces 26 counts of breaching his duties, is alleged by ASIC to have covered up a $115m deficit in the account of Sydney lawyer Chris Murphy by double-counting funds.

This was one of the main reasons for the collapse of Opes, although mining entrepreneur Norman Seckold withdrew $95m from the broker not long before its demise.

ANZ Bank also imposed a stricter secured lending model on Opes as well as a related company, Leveraged Capital, which reduced the amount of funds available.

Unlike Mr Smith, Mr Emini and Mr Blumberg bypassed a committal hearing in the Magistrates Court, choosing to have their cases heard directly in the Supreme Court.

Mr Smith’s bail was extended yesterday to July 18, before which a trial date will be determined. The trial could take about four weeks.

Bail was also extended for Mr Emini and Mr Blumberg until the next mention date on May 9.

The problem, however, is that McEwan — a former Kiwi who was with ABS in New Zealand before heading across the Tasman five years ago — won’t have a bar of the speculation.

Instead, he’s comfortable with the position of being the driving force behind CBA’s dominant position in retail banking.

It was McEwan who spearheaded CBA’s recent retaliation against rival National Australia Bank (NAB) over its controversial “Break Up Campaign”.

NAB, Australia’s fourth largest bank, is attempting to build mortgage market share by offering to pay the exit fees for CBA and Westpac customers to switch their mortgages. The move was always going to prompt a response from the Melbourne-based bank rivals, but the CBA’s action was akin to the “empire strikes back”.

Even though it took a couple of days to weigh into the debate, following the swift moves from Westpac, CBA came out fighting. Firstly it formulated a deal to pay the exit fees for NAB customers. However, its main move was to release a no-frills loan with a 7.24 per cent mortgage rate — the lowest of a top four bank — with no fees for the life of the loan.

McEwan says the current competition war, while a battle to retain market share, is the result of the major Australian banks having increased access to wholesale markets at much lower rates than those in the aftermath of the crisis. “You need to look at the underlying factors to explain what is going on in the market right now,” McEwan tells The Australian.

“For the last decade there has been double-digit home loan growth and it was only in the past three years that funding costs have become an issue.

“Through the crisis that put the pressure on a lot of players, especially the smaller players and their ability to fund themselves.

“That had the result of banks staying in the market and other banks withdrawing from the market. In the GFC Australians continued to borrow for housing but we have seen that growth move to 6 to 8 per cent, compared with, say, 15 per cent before the crisis.

“At the same time, we’ve seen the availability of money offshore improve.” McEwan is confident that despite the competitive strategies under way between the banks, the CBA will hold its market leading stake of 26 per cent.

“It has always been competitive, but right now we are in a position where you have more money chasing fewer loans,” he says. “That is what’s driving this, that’s where the competition has stepped up. You’ve had a player like NAB come out and you have seen others respond in different ways. Westpac has pretty much gone out there, and ourselves, to say we are going to hold on to our customer base.”

He admits CBA has had an increase in customers inquiring about switching their loans, but he’s adamant the biggest bank will not lose market share.

As a result of the competition wars, McEwan says the major banks are likely to increase the discounts on offer to their current customers.

“When you look at it, about 90 per cent of our customer base are on a discounted package already. It’s only a small number who pay our standard variable rate of 7.81 per cent,” he says.

“There’s only a certain portion of our base that you would consider ‘active’ customers. It’s a small number that are looking to switch or pay down their mortgage. I would say it’s only about 4 to 5 per cent that are looking to refinance, so there’s a lot of noise.”

The success, or otherwise, of NAB’s campaign is expected to become evident in lending numbers from April to June.

Aside from the mortgage wars, the CBA retail bank is performing strongly with the division recording a $1.38bn net profit for the first half, up 12 per cent on the same time last year.

The result was attributed to solid loan growth, costs being managed across the business and lower impairment expenses.

McEwan is pleased with the performance of the business, especially as the rollout of its Core banking platform progresses.

“We have tweaked our strategy slightly to focus on customer services and making the products more transparent, more simple and easier to understand,” he says. “That has driven us for four years.”

Even with that outlook, he admits the bank has taken a reputational hit after the massive blunder earlier this month when its ATM network began dispensing too much cash to customers due to a technical glitch. The bank is working alongside police to find the offenders who deliberately overdrew their accounts.

McEwan places little importance on the speculation that he is next in line to replace Norris when he leaves the bank.

Norris is on a rolling contract and has given no indication that he could be ready to retire from the bank, which is on track to reach another record profit.

“I’m focused on making sure we are growing our market share and make sure we are the most efficient bank in Australia,” McEwan says.

The Tokyo-based investment bank, with regional headquarters in Hong Kong, London and New York, has been building its presence in Australia. Less than a year ago, the firm hired a managing director for mergers and acquisitions, a head of fixed income and a head of equities for Australia.

Nomura is one of a handful of global investment banks that moved into the Australian market after the global financial crisis took hold. With a healthy resources sector and an active capital raising market during the worst of the crisis, the Australian market has been viewed as an attractive destination for global banks.

Nomura is currently searching for an executive to head up the new ECM desk in Sydney, the person said.

The group recently appointed Mark Williams head of ECM for the Asian region, excluding Japan. The firm said at the time that was part of a broader initiative to “enhance its global ECM client coverage, especially in the robust Asia ex-Japan ECM market”.

Initial public offering and follow-on activity boomed in Australia in 2009 to $US66.13 billion ($66.44bn), its highest level on record, according to Dealogic.

Equities investors were ready lenders for companies looking to raise capital to strengthen balance sheets during the credit crisis, making Australia one of the busiest markets for equity capital raisings during that period.
At the time, banks like Nomura, New York-based Moelis & Co, Barclays Capital and Greenhill & Co moved into Australia.
Park Avenue-based Greenhill bought Australian financial advisory group Caliburn.
Moelis, which built its business here from scratch here over the past few years, now has 40-plus staff in Australia and has done work for companies like retailing giant Woolworths. Barclays Capital (BARC.LN) launched a merger and acquisition advisory business at the end of 2009 but has yet to add an ECM desk.

Nomura now has about 150 staff in Australia.

Even investment banking giants like Bank of America-Merrill Lynch (BAC) and Citigroup (C) were actively recruiting staff in Australia during the downturn.

Equity capital markets activity in Australia has quieted since 2009, however. Activity in 2010 was roughly half of what it was during 2009. Year-to-date, US$4 billion of initial public offering and follow-on activity has taken place, compared to $US3.7 billion a year prior, according to market-data provider Dealogic.

But the purely economic effects on Japan and its neighbours should be relatively short-lived.

The cost to private insurance companies would be anywhere between $US14bn and $US33bn, the bank said in a special study released yesterday.

“We expect the economic impact of this disaster on the East Asian region to be fairly short-lived,” said Vikram Nehru, the World Bank’s chief economist for northeast Asia.

“We expect growth in Japan will pick up as reconstruction efforts accelerate.”

The bank says the Japanese government’s share of the costs of reconstruction is likely to be $US12bn immediately and “much more in fiscal 2011″, which begins next month.

Japan is the world’s third-largest economy and Australia’s second-largest trading partner.

The country is a major producer of high-technology products, specialised manufacturing equipment, vehicles and machine parts for the automotive and electronics industry.

Shortages of key components have emerged since the earthquake and tsunami 11 days ago, causing prices to rise for items such as memory chips.

Amid unconfirmed reports that Japan would issue more than 10 trillion yen ($126.6bn) in earthquake reconstruction bonds, a senior official of the governing Democratic Party of Japan said Naoto Kan’s administration would frame two special budgets within three months.

“It is inevitable (to make) a first and second supplementary budget on a sizeable scale by June,” the party’s Diet affairs chief Jun Azumi said yesterday during a visit to Ishinomaki, a Miyagi coastal town smashed in the tsunami.

“We will map out a reconstruction plan as quickly as possible and swiftly build temporary housing (for quake victims) and help industries with their reconstruction work.”

If history is any guide, the World Bank says in its report, Japan’s growth rate will be negatively affected only until mid-year, and the economy will be rebounding by year’s end.

The World Bank compares the likely effects of what is now officially the East Japan Great Earthquake and Tsunami with the 1995 Great Hanshin earthquake, which badly damaged Kobe and nearby cities, costing 6400 lives.

The 1994 earthquake cost the Japanese economy $US100bn or 2 per cent of GDP, and the reconstruction cost was $US38bn over two years.

The report estimates the final economic cost of this month’s devastation at 2 per cent to 4.5 per cent of GDP, or $US122bn to $235bn, potentially exceeding the 2005 Louisiana hurricane and floods as the costliest natural disaster ever.

After the Kobe earthquake, Japan’s trade with the Asian region slowed for only a few quarters before recovering, the report says.

“Within a year, imports had recovered fully and exports had rebounded to 85 per cent of pre-quake levels.”