Login
ISCOVER
The RBA has dismissed suggestions that any curbs to lending rules will also come with the "heavy regulation" seen in previous decades.
In a speech on Tuesday, RBA deputy governor Philip Lowe said previous experiences by the central bank to regulate lending had simply seen a rise in the ability of financial institutions to find a way around it.
To continue reading the rest of this article, please log in.
Looking for more benefits? Become a Premium Member.
Create free account to get unlimited news articles and more!
Looking for more benefits? Become a Premium Member.
"As it turns out, the financial system is very good at finding ways of getting money from the people who have it to those who want to borrow it, although perhaps less good at containing aggregate risk," Mr Lowe said.
The RBA deputy governor used the speech to reiterate the central bank's concern over investors, cautioning both lenders and borrowers that home loans had become riskier.
"It is important to make clear that I am not saying that this will end badly, or even that is likely to end badly – just that, on average, recent loans are probably a bit more risky than those made earlier," Mr Lowe said.
"One reason this might be the case is that the likelihood of some type of painful household balance adjustment in the event that there is a correction in the housing market, while still not high, has probably increased," he said.
"Given this, it is prudent for both borrowers and lenders to be careful."
Mr Lowe said lenders needed to ensure that their standards remained sound and that they hold the appropriate amount of capital against the risks they face.
In addition, investors need to evaluate developments in the broader market, including how their investments might turn out in less benign scenarios, he said.
"Careful attention to these issues will help ensure that in getting the economic benefits of low interest rates we do not generate unacceptable risks on the financial side."
[Related: Lending curbs are nothing to fear]
