Superannuation continues to pose a limited risk to Australia’s financial stability, says the RBA – but its large size means it could exacerbate a market shock.
The Reserve Bank of Australia (RBA) released its half-yearly Financial Stability Review on Friday, finding that the Australian financial system remains “resilient” to adverse shocks.
The RBA pointed to efforts to strengthen the balance sheets of the major banks, highlighting the need for the big four to “address [misconduct] issues stemming from the culture”.
The resilience of the insurance industry has also increased as profits have recovered and capital has been built up, said the RBA.
When it comes to the $2.6 trillion superannuation sector, the risks to the sector’s lower levels of debt were relatively lower than other parts of the system.
This is especially true for APRA-regulated funds, said the RBA, which are not generally permitted to borrow.
But while the longer-term focus of the superannuation sector generally reduces risks, its large size could still “amplify” shocks to the broader financial system, said the RBA.
This could happen if a substantial portion of the $2.6 trillion sector’s asset allocation is changed in response to a shock (either by fund managers directly, or by members “switching between investment choices rapidly”).
An additional risk could be if superannuation funds seek to boost returns by investing significantly more in leveraged assets such as property development, said the RBA.
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