In a Senate inquiry into the banking sector today, Reserve Bank Governor Glenn Stevens has warned the government not to mess with the banking system too much or face the risk of “unintended consequences”.
“When you think about extensive public intervention in housing markets, we don’t need to go any further than the United States of America to see what can go wrong if you’re not very careful in the way incentives are designed.” he said. “There can be, and there usually are, unintended policy consequences down the track. We should be quite careful about how we assess these things.”
He indicated the Australian Banking system is more competitive today than in the mid 1990s.
Mr Stevens also took the opportunity to warn Australians against any more excessive borrowing in the future. “My view is (that) we’ve managed this fairly well but I don’t think we should push our luck too much from here in terms of gearing up any further,” he said. “I don’t think it would be very wise.” He said 20 years ago Australians enjoyed household debt levels below most of its peers. “We’re not any more. We’d be up near the top (of the pack)”
The ABS announced today that the value of housing finance for owner occupation climbed 2.8 per cent seasonally adjusted in the month of October to $14.1 billion. Australian households now owe a record $1.01 trillion in the June quarter. We highlighted yesterday that Wayne Swan is concentrating too much on Interest Rates (at a time when interest rates are low), rather than the extremely high levels of Household debt. At current rates, the couple of percentage points shaved off interest rates (of any) through increased competition come July next year will be eroded by increases in our household debt levels.
» 5671.0 – Lending Finance, Australia, Oct 2010 – ABS, 13th December 2010.
» Housing loans swell as credit card growth slows – The Sydney Morning Herald, 13th December 2010.