Falling housing prices in Sydney and Melbourne are less likely to be a risk to financial stability: CFR

Falling housing prices in Sydney and Melbourne are less likely to be a risk to financial stability: CFR
Falling housing prices in Sydney and Melbourne are less likely to be a risk to financial stability: CFR

The risks to financial stability from falling housing prices in Sydney and Melbourne have abated, according to the Council of Financial Regulators (CFR).

The CFR is the coordinating body for Australia's main financial regulatory agencies.

There are four members: the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA).

It is a non-statutory body, without regulatory or policy decision-making powers.

At its meeting on 18 September 2019, the Council discussed risks facing the Australian financial system, regulatory issues and developments relevant to its members.

The topics discussed included the following:

  • Financing conditions and the housing market

    Council members discussed credit conditions and recent developments in the housing market. Housing credit growth has been subdued, particularly growth in credit to investors. The major banks have seen slower growth relative to other lenders. Subdued credit growth has been primarily driven by weaker credit demand, though loan approvals have picked up recently. The potential for risks to financial stability from falling housing prices in Sydney and Melbourne has abated somewhat, with prices rising in the past few months. In contrast, prices have continued their prolonged decline in Western Australia and the Northern Territory and so the prevalence of negative equity for borrowers in those regions has continued to rise. The Council also discussed the continuing tight credit conditions for small businesses, with little growth in credit outstanding over the past year. The Council will continue to closely monitor developments.

    Members discussed progress with updating the guidance regarding responsible lending provisions in the National Consumer Credit Protection Act 2009. The updated guidance should provide greater clarity about what is required for a lender to comply with its obligations, taking into consideration enhancements to lending practices, the impact of competition from new market entrants, as well as enhanced access to and usage of consumer credit data and technological tools.

  • Policy developments

    APRA provided an update on a number of policy initiatives, including changes to the related entities framework for banks and other ADIs and proposals to strengthen remuneration requirements across all APRA-regulated entities. The proposed remuneration requirements seek to better align remuneration frameworks with the long-term interests of entities and their stakeholders, and incorporate a recommendation from the Royal Commission on limiting remuneration based on financial metrics. APRA briefed members on the outcomes of its capability review.

  • Superannuation fund liquidity

    The Council considered arrangements for managing liquidity at superannuation funds during periods of market stress. They noted that arrangements had operated as intended during the financial crisis and had since been strengthened. They agreed that existing arrangements provide an appropriate incentive for superannuation funds to manage their liquidity and that circumstances where a systemic liquidity problem could arise for the superannuation system were highly unlikely. Members concluded that no additional measures, including access to liquidity from the Reserve Bank, were warranted.
Tags: 
Housing Prices Financial Stability

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