the RBA and macroprudential policy

R

red liverbird

Hi all,

I've been going through this interesting speech by Luci Ellis of the RBA (I know its a bit old!)

http://www.rba.gov.au/speeches/2012/sp-so-111012.html

I'd be curious to hear people's thoughts on the future directions of macroprudential policy. For those of us pursuing a debt based investment strategy future changes that might limit borrowing are a bit concerning - at least to me and how it impacts my plans - regardless of whether the financial system as a whole becomes more stable!

Self interest aside, I'd love to know if anyone has been factoring these sought of regulatory risks/changes into their plans?
 
I attended this speech live - there were cameras - so i assume you'll be able to find more than a transcript.

From my recollection, the RBA/APRA dont like LTV/DSR ratios - too interventionist and controls the banks too much for their liking. These are relatively new in the policy toolkit and the effects of which are yet to actually be well understood. NZ and Singapore have used them recently to different effects. Talking to agents in Singapore recently, its drastically reduced volumes transactions...but hasnt smashed prices all that much (this was back in Jan).

Regulators approach is more supervisory in Australia - less hands on. Easier to have that approach when there are only 4 major players.
 
On a separate note, i was incredibly impressed by Luci. Young future star at RBA i think. Governor material one day.

red liverbird said:
Hi all,

I've been going through this interesting speech by Luci Ellis of the RBA (I know its a bit old!)

http://www.rba.gov.au/speeches/2012/sp-so-111012.html

I'd be curious to hear people's thoughts on the future directions of macroprudential policy. For those of us pursuing a debt based investment strategy future changes that might limit borrowing are a bit concerning - at least to me and how it impacts my plans - regardless of whether the financial system as a whole becomes more stable!

Self interest aside, I'd love to know if anyone has been factoring these sought of regulatory risks/changes into their plans?
Click to expand...
 
Ah, thats what I love about these forums, ask a question bout a speech from a couple years ago and someone who was in the room replies!

The RBA seems to be making an increasing about of noise about this stuff - thats whats perked my interest.

Any move towards something more interventionist could have pretty big impacts on anyone whose highly leveraged. From my experience thats quite alot of people (maybe not across their whole portfolio, but at least for particular assets).

I assume any changes are unlikely to be retrospective though...
 
This would have very serious affects on peoples abilities to borrow and in turn the demand for properties.

It'd be a policy toolkit for the banks to implement via their credit policy.

So sure, they wont review all the loans theyve already said yes too... but any new application would be hit with greater assessment rates or new deposit requirements.

All depends on the type of policy used. Macropru can come in a range of forms and each would have a different effect with the same goal - financial stability.
 
I suspect the RBA will have more of a mandate on this one - so it wont require gov't approval/legislation.

Will make it much more easy to do if they wanted to do it.
 
Really???

I didn't know the RBA had that sought of power. I though these type of reforms would need to be supported by the government / APRA etc. At the very least is it reasonable to assume the RBA isn't going to act without the support of other policymakers?
 
The RBA and the government sign a statement of understanding with the Government every few years.

It is where the Government give the right for the RBA to act independently from the government for the achievement of certain objectives with certain tools.

In one of the latest statement (2011/2014) - financial stability was put in there. This was a first.

Dont quote me on it, but i'm pretty sure APRA/RBA can do this without legislation and without formal government approval.
 
Redom said:
Dont quote me on it, but i'm pretty sure APRA/RBA can do this without legislation and without formal government approval.
Click to expand...

Look at what the RBNZ did (it didn't require Govt approval).

I agree with Redom, it would be within the RBAs ambit.

I have often described the RBA as a dog on a leash. They have a lot of freedom to move within the limit of that leash. If matters of RBA policy ever amounted to a material difference of opinion between the RBA and the Treasurer, then the Treasurer has them by the short and curlys (after all she/he is part of a government that has been elected to manage the economy - the RBA are just public servants*).

But (afaik) it's never been really put to the test (not in recent years).

*Keating used to manipulate the RBA big time - especially when his man (Fraser) was in charge. But they've been a lot more independent for the better part of 20 yrs.
 
Excuse me while I throw up....

I just read this garbage and just excuse me while I clear my stomach .... Ah that's better .....What this lady is saying is during the GFC lots of regions had troubles. Now Australia actually didn't really have any troubles but other regions did. OK ? Got that ? Australia had NO problems. ....USA had problems due to lack of supervision. UK and Netherlands had problems due to high LVRs ...some up to 125% !! (Gees and you wonder they had troubles?). Hong Kong had problems ..etc. etc..but Australia had no problems. Even though we had no problems I'm giving a speech today on the problems we could have had ....if we were like other regions ....but we are not like other regions ....and we had no problems...but I'm giving you a speech on the problems other regions had that we might have had but we didn't ....OMG give me strength. Read the last two paras ....at least she says " hey things here are mostly ok " . Could this lady be gov of the RBA. Yep. Plenty of time to kill obviously and an ability to insult anybody who can think. ....these people are well paid and control our lives folks. LL
 
Redom said:
On a separate note, i was incredibly impressed by Luci. Young future star at RBA i think. Governor material one day.
Click to expand...

I can't believe I'm reading this. How can you be impressed with that speech? In essence the lady addressed a problem that does not exist ....Our lending practices here are nothing like USA for example. Nothing. The USA loans are non recourse. Oz is full recourse just for a start. I could go on but why bother. LL
 
Sorry you felt insulted reading that landlubber - certainly not the intention!

Its a piece about macro prudential policies, what options there are and how they were and could of been used in various countries, and what Australia can take out of all that.

To me that sounds like someone whose trying to learn from other countries experiences to benefit Australia as opposed to someone who just has plenty of time to kill and a desire to insult anybody who can think...
 
Why oh why would you learn from "other countries" when they screwed up and we didn't? The acid test (GFC in this case) has passed. In terms of our housing/mortgage market we passed with flying colours. LL
 
I agree that we've faired pretty well through the GFC, and I also agree that some (but not every) problems/risks in other financial systems are not in Australia's system.

But I think when a problem the size of the GFC occurs there are always things to be learnt regardless of how well we've faired.
 
Pretty sure Luci was laying out some context to a growingly accepted tool (by the IMF, and our neighbours) to promote financial stability.

I agree, it is a policymakers speech. I was both impressed by her speech and impressed by her.

This para is the most interesting take out for the SS community.

I also worry that focusing too much on the LVR would be a mistake. Lenders that do that are engaged in asset-based lending, which is exactly the kind of practice we would want to avoid. There are many other dimensions of lending standards beyond LVRs.[6] In my view, the borrower's ability to repay is more important than the collateral. Lenders also need to think about how certain they are about the valuation in that loan to valuation ratio. One of the things that went wrong in the United States during the boom was that the valuations behind the lending decisions were often flawed, or even fraudulent.

landlubber said:
I can't believe I'm reading this. How can you be impressed with that speech? In essence the lady addressed a problem that does not exist ....Our lending practices here are nothing like USA for example. Nothing. The USA loans are non recourse. Oz is full recourse just for a start. I could go on but why bother. LL
Click to expand...
 
Good point ....

MarkB said:
Just wait until the US Government defaults (if they default, I think they will at some point).

And then we will know what pain is.
Click to expand...

Your comment is very valid MarkB and a topic I think about a lot ... but I get to the "limit of my CPU" too quickly. What happens when the (current) world's reserve currency goes to "zip" ....are any fiat currencies "safe" ? They don't have a good track record. The experts say 2% of your gross assets in gold for a start. Then there's Bitcoin ...Meanwhile USA keeps racking up debt on the "debt clock" with total abandon..... Interesting huh ? LL
 
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