Okay, bank shareholders, have your rotten tomatoes ready…

The Australia and New Zealand Banking Group (ASX: ANZ) share price fell as much as 4.5% today – and is down 15% this year!

Source: Google Finance

Source: Google Finance

It gets worse.

Indeed, if I really wanted to cherry pick, ANZ’s share price is 36% lower than its March 2015 52-week high of $37.25. Ouch!

Now, I can’t confirm that today’s share price fall has something to do with the recent ANZ trading scandal that has overwhelmed news mastheads, or if it’s concerns over Australia’s debt bubble, a result of China’s slowdown, the possibility of a dividend cut, or all of the above.

Are you worrying, yet?

Australia and New Zealand Banking Group’s 36% share price fall compares to those of its peers:

  • National Australia Bank Ltd.’s (ASX: NAB) share price is down 32%
  • The Commonwealth Bank of Australia (ASX: CBA) share price is 19% lower; and
  • Westpac Banking Corp’s (ASX: WBC) share price is down 24%

So perhaps it’s a banking sector thing.

Time to cycle out?

For the record, I don’t have share market exposure to the major banks, and I certainly don’t blame investors for pulling their money out. As has become well known to regular readers, I’m bearish on the whole sector.

You see, banking is intensely cyclical – just like mining.

Indeed, we use debt to buy fancy cars and nice houses during the boom times. These times are usually characterised by low-interest rates and good employment levels.

But when the jobs dry up and there’s talk of a recession (we haven’t had one in 24 years), no rational person wants to take on 95% leverage to buy an asset (a house) which yields less than 3%, or gear ourselves up with 100% leverage to buy to an ‘asset’ (a car) that yields negative returns.

Therefore, if banks truly are cyclical – which they are – you can bet that they’ll fall hard when the cycle isn’t in their favour. Hence, it’d be best to avoid them.

To make things easy, let’s use a simple checklist to weigh-up some recent economic trends to gauge what stage of the banking cycle we may currently be enjoying:

  1. Is the economy slowing? Check.
  2. Have hundreds of billions of investment dollars been pulled from Australia? Check.
  3. Are higher regulations and capital raisings going to hurt returns? Check.
  4. Are bad debts at record lows? Check.
  5. Could Australia’s per person debt level be at a record high? Check.
  6. Are profit margins the worst they’ve ever been? Check.
  7. And are Australia’s bank shares among the most expensive in the world? Check.

…so why have bank shares fallen?

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Motley Fool writer/analyst Owen Raszkiewicz does not have a financial interest in any company mentioned in this article. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn and you can follow him on Twitter @ASXinvest, or comment below. 

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.