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RBA fears Hayne could trigger credit crunch

RBA fears Hayne could trigger credit crunch

James Mitchell
— 1 minute read

The Reserve Bank of Australia has echoed Westpac’s warning that the impact of the royal commission could see further reductions in the availability of credit, sparking broader fears for the economy.

In the minutes of its October meeting on monetary policy, the Reserve Bank notes that members discussed the release of the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“The report contains many questions covering a broad range of issues, but at this stage provides relatively little indication of the recommendations that are likely to be made in the final report,” the minutes said

“Members observed that while the regulators had already overseen a tightening of lending standards, and a degree of tightening of lending standards had been implemented by banks in anticipation of the commission's findings, it was possible that banks could tighten lending conditions further given the issues raised in the report.

“Members noted that it would be important to monitor the future supply of credit to ensure that economic activity continued to be appropriately supported.”

The RBA’s comments come after Westpac chief executive Brian Hartzer used his opening statement at a parliamentary inquiry this month to warn against further regulation of lenders in response to the Hayne royal commission.

Appearing before the House of Representatives standing committee on economics, Westpac CEO Brian Hartzer urged legislators to consider the “second-order effects” of further regulation that may be introduced to reduce misconduct off the back of the commission.

“New regulations and tougher sanctions alone are not going to solve the risk of poor conduct,” Mr Hartzer said.

Mr Hartzer expressed support for an observation noted by commissioner Kenneth Hayne in his interim report, which suggested that simplifying regulation could reduce poor consumer outcomes.

The major bank CEO warned that further regulation could exacerbate the slowdown in credit and housing market conditions and impede economic growth.

“[In] striving to address the issues that have led to misconduct, it’s important that policymakers remain live to the potential second-order effects of new legislation and regulation,” the CEO continued.

“While overall economic growth remains sound, we are seeing increasing uncertainty, especially among the consumer and small business sectors.

“House prices are falling, income growth has been low, and consumer spending is likely to be affected by people’s confidence in the value of their home.

“Therefore, regulatory changes that impact how much individuals can borrow, the cost and availability of credit for business, or the availability and affordability of suitable financial advice, should be considered carefully.”

 

RBA fears Hayne could trigger credit crunch
Reserve Bank of Australia
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