RTTNews - Banks will be required to meet more regulations globally and this would make the core of the system safer, Reserve Bank of Australia's Assistant Governor, Malcolm Edey said in Sydney on Wednesday.
We are moving into a world where banks are going to be required to hold more capital and to take less risk, he said in the Retail Financial Services Forum in Sydney. He added that regulators will ask for higher liquidity resources and they will pay more attention to the way risks interact across the financial system, in addition to the focus on the safety of individual institution.
More demanding regulation of banks' capital, liquidity and risk-taking will make the core of the system safer. But, he added ... it will also add to banks' cost of doing business, and to the incentive to shift business into the less regulated parts of the system. So it will be important to get this balance right.
He noted that conditions remain still challenging after the intense phase of crisis that occurred during the six-month period following the Lehman collapse in September 2008.
The central banker said he is wary of making any predictions. He assessed that Australia's banks to date have come through the crisis in a better shape than most.
Australian banks had stronger balance sheets position coming into the crisis period. They also had less exposure to high-risk assets than many of their global counterparts. One reason why banks faced relatively small asset losses was that the economic downturn in Australia has been nowhere near as severe as elsewhere, Edey noted.
According to Edey, various guarantee arrangements that were taken around the world, played an important role in stabilizing conditions after the extreme dislocation. These were temporary measures and most nations have fixed expiry dates for their schemes most commonly later this year.
The pricing structure of the guarantees should also be considered as an important part of the exit mechanism. It is encouraging to note that Australian banks have again begun to issue significant amounts of unguaranteed debt in the last month or so.
Business and consumer confidence indicators rebounded with the rising momentum in equity markets. And credit spreads and risk premia in a range of global markets have been narrowing, although they are not yet back to normal. In making these observations, I have to give the usual caution that the situation is still very uncertain, and further setbacks are still possible, Edey said. He cited the improvement in confidence indicators as encouraging signs.
Earlier in the day, Treasurer Wayne Swan said in an address to the Canberra International CEO Forum that there is no foundation to criticisms of stimulus and levels of borrowing. Both are necessary and important contributors to the fact the Australian economy is outperforming those of comparable countries, he said.
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