Australia's Financial System Under Strain but Still Performing Strongly, Central Bank Says.
Australia's financial system is under the most strain it has had to face since the early 1990s, but compared to other countries is it performing strongly, the country's central bank said in a report Thursday.
Banks remain profitable and exposure to the U.S. housing sector downturn is minor, the Financial Stability Review said. "In Australia, the financial system has coped better with the recent strains than have the financial systems of many other countries," the report from the Reserve Bank of Australia said.
Major Australian banks are standing tall in the storm that has washed over the world's financial markets, maintaining strong credit ratings and retaining an ability to raise funds domestically and overseas, it said.
"Despite the strains in global financial markets, the underlying resilience of the Australian financial system, together with the relatively favorable outlook for the domestic economy, means that the system is much better positioned than the financial systems of many other countries to cope with the current difficulties."
Prime Minister Kevin Rudd, in a speech Thursday, suggested global regulation of financial systems, and said the RBA and Treasury officials are already in talks with their counterparts about managing the ongoing global credit crisis.
"As financial markets become more global and assets are traded more quickly between nations, so too must regulation and supervision become more global. The current crisis has highlighted the importance of disclosure and transparency," Rudd said.
The RBA report suggests the bank remains cautious about global and domestic market conditions and will remain sidelined for now, keeping its official interest rate target at 7.25 percent.
The RBA has raised rates four times since the onset of the global markets crisis in August 2007, setting it apart from other central banks and highlighting its confidence in the resilience of the Australian economy as world growth slows.
The financial report said a strong Australian job market provided solid support to households trying to meet debt obligations, and that business profits also remain solid and default rates are low.
But there are pockets of stress in the economy. "Notwithstanding this positive picture, the recent sharp increase in risk aversion and higher funding costs have created difficulties for some firms, particularly those with highly leveraged balance sheets, and those that have relied heavily on short-term funding," the report said.
Australia's financial system is under the most strain it has had to face since the early 1990s, but compared to other countries is it performing strongly, the country's central bank said in a report Thursday.
Banks remain profitable and exposure to the U.S. housing sector downturn is minor, the Financial Stability Review said. "In Australia, the financial system has coped better with the recent strains than have the financial systems of many other countries," the report from the Reserve Bank of Australia said.
Major Australian banks are standing tall in the storm that has washed over the world's financial markets, maintaining strong credit ratings and retaining an ability to raise funds domestically and overseas, it said.
"Despite the strains in global financial markets, the underlying resilience of the Australian financial system, together with the relatively favorable outlook for the domestic economy, means that the system is much better positioned than the financial systems of many other countries to cope with the current difficulties."
Prime Minister Kevin Rudd, in a speech Thursday, suggested global regulation of financial systems, and said the RBA and Treasury officials are already in talks with their counterparts about managing the ongoing global credit crisis.
"As financial markets become more global and assets are traded more quickly between nations, so too must regulation and supervision become more global. The current crisis has highlighted the importance of disclosure and transparency," Rudd said.
The RBA report suggests the bank remains cautious about global and domestic market conditions and will remain sidelined for now, keeping its official interest rate target at 7.25 percent.
The RBA has raised rates four times since the onset of the global markets crisis in August 2007, setting it apart from other central banks and highlighting its confidence in the resilience of the Australian economy as world growth slows.
The financial report said a strong Australian job market provided solid support to households trying to meet debt obligations, and that business profits also remain solid and default rates are low.
But there are pockets of stress in the economy. "Notwithstanding this positive picture, the recent sharp increase in risk aversion and higher funding costs have created difficulties for some firms, particularly those with highly leveraged balance sheets, and those that have relied heavily on short-term funding," the report said.
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