Whiff of Panic among Australia’s Biggest Banks? Australia’s WTF Moment. By Wolf Richter.

On August 2, the Reserve Bank of Australia (RBA) lowered its target “cash rate” by 25 basis points to 1.50%. And what did the banks do? Something so strange it smelled of panic.

[S]ince about two-thirds of the assets of the big four banks are loans to the property sector, particularly mortgages, the RBA is getting nervous. It mentioned the oncoming tsunami of supply of housing units, tightening lending standards, and the pull-back of maxed-out potential homebuyers. It seems the RBA fears that something is going to prick the Australian housing bubble and take down the banks. …

Charles Littrell, executive general manager of supervision and support at APRA, the bank regulator, pointed out in April so eloquently that they’re not only “too big to fail” in terms of Australia’s economy; they’re “almost too big to get sick.”

And here is what happened next, after the RBA’s rate cut: the same day, the banks announced that they would, as expected, cut their mortgage rates and some other loan rates, but would also raise their term deposit rates for savers – and by a whole whopping lot.

The big four raised term deposit rates by 0.55 to 0.85 percentage points to around 3%. They must want your money fairly badly. Why?

Housing loans used to typically be about 25% of bank assets, but are now 65%. If Australian house prices fall, our banks are in trouble … and the rest of the economy could follow.