Most Australian investors will list the big banks like Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: NAB) as among their favourite shareholdings and investment options. It’s understandable given their dominant operating positions, impressive track records and juicy fully franked dividends.

The 2016 calendar year has been something of a shocker however with the likes of NAB, CBA and Westpac Banking Corp (ASX: WBC) all falling between 9% and 17% this year despite a rocketing housing market and annualised GDP growth of 3.3% over the past year. This against a backdrop of Australia’s record-breaking 25 years of uninterrupted economic growth.

So what’s going on?

Thanks to the mining boom Australia even managed to escape tipping into recession during the GFC, which was a time when the world’s financial system actually teetered on the brink of collapse as major overseas banks either collapsed or were forced into asking for bailouts from taxpayers (via governments) in order to avoid collapse.

Although it may seem a long time ago it’s the fallout from this banking crisis that is still blowing through the banking system and Australian banks’ share prices today and it’s all via tougher global regulations imposed by the Basel Banking Supervisory Committee. This is something I covered in more detail back in July with banks’ share prices continuing to slide since then as investors wake up to the toughening regulatory cycle.

Today in The Australian Financial Review Christopher Joye is reporting that the Australian banking regulator APRA may effectively automatically restrict the amount banks can pay in dividends as a percentage of earnings if their capital adequacy ratios fall too low in the years ahead. Naturally, in the event of an economic slowdown and rising bad debts this could put the banks and their share prices under intense pressure.

It’s worth noting that these regulatory inquisitions are faced by banks globally with their share prices falling in tandem around the world as the reforms imposed by local banking regulators are the result of increasing inter-governmental political pressure being exerted on banking regulators to toughen up.

The Basel Banking Committee is where the politicians’ conduits of the central bank policymakers meet the banking regulators to hammer out reforms thought necessary to prevent another GFC, among other things. The political blow through hitting the Basel Committee is still buffeting the banks as politicians resolve to avoid the humiliation of having to bail out banks ever again, with some still part nationalised across Europe.

Foolish takeaway

For Australian investors it’s worth noting the globalised and inter-connected financial system means Australian banks are likely to remain under regulatory pressure throughout the years ahead. This means dividends and share prices could continue to remain under pressure so investors ought to be wary of buying the banks on the basis of the fact they seem cheap on historical metrics.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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.