Speaking to the Centre for International Finance and Regulation (CIFR) Forum yesterday, RBA assistant governor (financial markets) Guy Debelle said recent regulatory reform serves as an effective backstop for consumers.
“The price of intermediation was too low before the crisis; now it is higher,” Mr Debelle said. “It was too low in the sense that risks were under priced.”
In describing the effect on the industry, he said the trend is to be “expected and desired”.
“As in many markets, when a price goes up, the quantity tends to go down … It is not unintended,” he said.
Mr Debelle also voiced concerns that it is unclear whether these changes may be having effects on the market over and above the intended price increases.
He suggested there may be quantitative losses to products as a result of a reshuffling of leverage and liquidity for some providers with lower inventories, describing this as an “open question which warrants answering”.
Mr Debelle also stated that the industry appeared to be engaging in self-imposed constraints, rather than being restrained by regulation.
“The regulatory-imposed constraint serves more as a backstop for when memories of the recent crisis fade, as they surely will in time,” he said.
“The regulatory constraint is designed to ensure that risk does not disappear from pricing when the euphoria returns.”
