(Australian Associated Press)
The Reserve Bank of Australia believes resurgent growth in investor home loans could force regulators to take further action to reduce the risk of a potential financial crisis.
RBA assistant governor for the financial system Michelle Bullock says the Australian Prudential Regulation Authority’s 10 per cent annual limit on growth in investor lending has worked.
However Ms Bullock warned that the cumulative effect of banks allowing growth to creep back up poses a risk to the whole financial system in the event of any downturn.
“There might be risks being taken, that in the event of a downturn might result in systemic issues for the banking system,” Ms Bullock said on Tuesday.
“What individual banks do, might look OK but when you group all the banks together as a system, sometimes all of them doing a similar thing can have a very dramatic effect.”
Ms Bullock acknowledged that the resilience of both borrowers and lenders had improved but said the Reserve Bank was prepared to do more to rein in risk.
She did not say what those measures would be.
In an attempt to bring down stubbornly high investor lending, Commonwealth Bank, Australia’s largest bank, is among the lenders to have stopped taking business from investors seeking to refinance loans from elsewhere.
“Certainly in terms of a financial stability perspective we are watching it because investors often are the first ones to get out if things turn down,” Ms Bullock said at a Bloomberg event in Sydney.
She added that she was not predicting a bubble in major city housing markets, but that the RBA was mindful of both banks and households possibly overextending themselves.
“What we’re focusing on is things like to what extent the growth in house prices, the growth in debt – what are they signalling about whether or not households have balance sheets that can withstand perhaps a downturn,” Ms Bullock said.
“Whether it be due to unemployment or a downturn in the economy for some reason.”
Ms Bullock said the 2008 global financial crisis had made regulators and central banks more prepared to intervene.
“Prior to the GFC there was a school of thought that because asset price bubbles could not be detected in advance, it was better to clean up after any bust, rather than lean against the cycle with policy,” she said in a speech at a Bloomberg event.
“There is now more acceptance of the need to take action when system-wide risks are rising.”