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The Reserve Bank of Australia's twice yearly Financial Stability Review provided no surprises. Earlier in the week the RBA held interest rates at an all time low on Tuesday to just 0.1% as widely expected. Australian banks in strong financial position coming out of pandemic banks have abundant liquidity and funding,

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RBA April 2021 Financial Stability Review Highlights

The Reserve Bank of Australia's The Financial Stability Review provides the Bank's assessment of the current condition of the financial system and potential risks to financial stability. It is issued half-yearly.

At a Glance

Financial systems in Australia and globally have been resilient to a substantial shock

Financial systems in Australia and internationally have been resilient to the effects of the COVID-19 pandemic. Banks have cushioned the economic impact of the pandemic and have supported the recovery through loan repayment deferrals and new lending.

An incomplete, or very uneven, economic recovery is a risk for financial stability

If incomes remain below pre-pandemic levels, as government support is wound back, it increases the likelihood that some borrowers exhaust their financial buffers and ultimately default. 

Cyclically low interest rates and rising asset prices create a risk of excessive borrowing

Asset prices globally have been rising and are at high levels underpinned by low interest rates. Asset prices rising beyond fundamental values, rapid growth in borrowing and weaker lending standards would be a risk to financial stability. 

Cyber-attacks are another growing risk for financial stability

Over the past six months there have been several high-profile cyber-attacks worldwide. While financial institutions were not specifically targeted, some were impacted by these attacks.

Banks

  • Australian banks in strong financial position coming out of pandemic banks have abundant liquidity and funding, adequate provisions for bad loans
  • housing price growth being watched closely by regulators
  • important that banks do not take excessive risks in low rate environment
  • lending standards have not yet deteriorated, remain robust
  • rising prices an affordability challenge for low income households
  • Australian banks in strong financial position coming out of pandemic
  • banks have abundant liquidity and funding, adequate provisions for bad loans
  • banks closely monitoring their exposure to office, retail property sectors
  • banks, insurers need to act early to address financial risk from climate change
  • banks set to draw down most of TFF funds, face largest ever refinancing task in 2023/24

Households

  • most households in good position to service debt with low rates, large liquidity buffers
  • some households, firms face rising financial stress as govt support measures unwind
  • committed liquidity facility for banks may no longer be needed given rise in bond issuance
  • rising asset prices a channel through which accommodative monetary policy works
  • many asset prices are high globally, but still consistent with very low interest rates

Cyber Attacks

  • cyber attacks growing risk for financial stability which banks need to guard against increasingly
  • likely that large financial institutions will be impacted by cyber attacks

 Headlines via Reuters:

Source: RBA

From a Sunburnt Country

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