Global regulators should tighten lending standards, RBA warns

Adam Smith 13 July 2016

oz moneyAn RBA official has suggested global banking regulators get mean.

The Reserve Bank’s head of financial stability Luci Ellis told a conference in Sydney that global regulators needed to pay more attention to lending standards in the wake of the global financial crisis (GFC), the Australian has reported.

“I find it extraordinary that in all the avalanche of reforms that have occurred since the crisis, there has been so little inter­national attention to lending standards. There is still no internationally accepted common language about lending standards,” Ellis said.

Ellis argued that regulators weren’t working to instil prudent lending practices, and were instead focusing on volumes, the Australian reported.

“The conversation ends up being all about quantities, not quality.”

She told the conference that bank asset quality “usually matters more than raw quantities”.

“For that reason, good lending and borrowing habits are more important to instil than a policy approach centred on a few numbers,” she said.

Ellis also downplayed fears of a credit downgrade after S&P placed Australia on negative rating watch, putting the country’s AAA credit rating at risk.

“Countries that have experienced sovereign downgrades from where we are to the next level down generally don’t see much of an effect on prices, given everything else. Often the ratings downgrade is a validation of what the market already thought,” she said.

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