AU RBA Financial Stability Review

Financial market participants have been increasingly optimistic about the prospects for a soft landing in the global economy. A substantial easing cycle in monetary policy is expected over the next two years or so, with inflation returning to central banks’ targets and unemployment rising only modestly. Although pressures from high inflation and tight monetary policy continue to weigh on many households and businesses, a number of developments – including the resolution of supply chain disruptions, declines in energy prices, continued strength in labour markets, strong household balance sheets and solid corporate earnings – have contributed to the global economy’s resilience to date. The capital position of large international banks leaves them well placed to weather a decline in asset quality and/ or worsening macroeconomic conditions. However, several economies, including the United States, have a sizeable tail of smaller banks, some of which are more vulnerable due to asset quality and profitability concerns. Although risks to the outlook for the global economy have become more balanced as inflation has eased, risks to global financial stability remain. These risks have the potential to spill over to the Australian financial system, v post: RBA Financial Stability Review: Most Borrowers Seen Coping If Rates Stay Higher For Longer - Banks Expect Arrears To Rise A Bit Further But Remain Low post: RBA: HOUSEHOLDS HAVE TRIMMED SPENDING, ARE UNDERPINNED BY STRONG JOBS MARKET, SAVINGS BUFFERS post: RBA: GLOBAL RISKS INCLUDE CHINA PROPERTY, COMMERCIAL REAL ESTATE, ASSET PRICE CORRECTION, GEOPOLITICS

Global financial stability risks are elevated, reflecting challenging macroeconomic conditions. The increase in inflation and interest rates since 2021 has put pressure on household and business finances in Australia and around the world. It has also exposed vulnerabilities in parts of the international banking system, in some non-bank financial institutions (NBFIs) and in segments of global financial markets. Periodic episodes of stress in some economies, including the banking stress in the United States and Switzerland in March 2023, have required intervention by policymakers to support financial stability. Households and businesses in advanced economies have been largely resilient to date, despite a challenging set of economic conditions that includes high inflation, restrictive monetary policy settings and slowing growth. Low levels of loan arrears and high levels of capital and liquidity continue to support stability in the global banking system. However, global financial stability risks remain elevated. post: RBA: AUSTRALIAN FINANCIAL SYSTEM SOUND, SOME POCKETS OF STRESS AMONG HOUSEHOLD BORROWERS post: RBA: AUSTRALIAN BANKS WELL CAPITALISED, HAVE LOW EXPOSURE TO COMMERCIAL PROPERTY post: RBA: ANY INCREASE IN UNEMPLOYMENT WOULD ADD TO STRESS, BUT UNLIKELY TO THREATEN SYSTEM OVERALL

Global financial stability risks have increased despite loan arrears remaining very low. Some regional banks in the United States failed in March because of weaknesses in their business models and risk-management practices. Heightened risk aversion led to an increase in volatility in some financial markets and to liquidity stress transmitting to other parts of the international banking system. This culminated in the regulator-facilitated takeover of Credit Suisse by UBS, following a lengthy period of concerns being raised about ...

Financial stability risks have increased over recent months. Global financial conditions have continued to tighten as persistently high inflation has prompted an unusually rapid and synchronised increase in policy rates in advanced economies. Growth forecasts for the global economy have been revised down sharply and geopolitical tensions have severely disrupted energy markets. A turn in the global credit cycle is likely at hand, though from a starting point where loan arrears are very low and large banks are liquid and well capitalised. In response to the sharp increase in interest rates and an increasingly uncertain outlook for the global economy, financial asset prices have declined significantly and volatility has risen over recent months. Trading conditions in energy markets, particularly for European gas, have remained fragile following Russia’s invasion of Ukraine. Heightened volatility in global financial markets has seen margin calls and liquidity shortfalls transmit through parts of the financial system, including non-bank financial institutions where regulators have less visibility over the use of leverage. Bank funding markets have been less affected by the recent pick-up in financial market volatility. Beyond financial markets, the impact of higher interest rates has been most evident in the slowing or reversing of housing price growth in many economies after a large run-up in prices over recent years. Credit remains readily available to households and firms, but growth in housing credit is slowing alongside post at 8:31pm: *RBA: AUSTRALIAN BANKS REMAIN LIQUID, VERY WELL CAPITALIZED *RBA: HIGH H/HOLD DEBT RISK EASED BY RISE IN LIQUIDITY BUFFERS *RBA: H/HOLDS’ FINANCIAL RESILIENCE CLOSELY TIED TO JOB MARKET *RBA: SOME HOUSEHOLDS ALREADY FEEL STRAIN OF HIGHER RATES, CPI post at 8:32pm: RBA: IN RECENT MONTHS, THE RISKS TO FINANCIAL STABILITY HAVE INTENSIFIED. post at 8:32pm: RBA: MARKETS STRESSED BY SYNCHRONISED POLICY TIGHTENING, GEOPOLITICAL TENSION, HIGHER US DOLLAR, RISING ENERGY PRICES

Global financial systems have continued to function well over the past six months with further waves of COVID-19 having limited impacts on financial institutions and markets. A new source of uncertainty has been Russia’s invasion of Ukraine, which has accentuated some existing risks in the global financial system and created others. Commodity prices have increased sharply and there has been an increase in market volatility, which has resulted in some market participants facing liquidity shortfalls. However, most international banks have only minor links to the Russian and Ukrainian financial systems, and so direct losses from these exposures do not pose a significant risk to these institutions or the global financial system. Nevertheless, the large falls in Russian asset values have meant losses for some investors, with some essentially writing off the value of their Russian investments. Since late 2021, long-term interest rates have increased significantly following higher-thanexpected inflation in many countries. Expectations of future increases in policy interest rates have also been brought forward. As a result, the prices of some financial assets have declined, although there have not been widespread falls in residential or commercial property prices. With inflation higher and more persistent than forecast, there is a risk that short- and long-term interest rates could increase by more than financial markets currently expect. It is possible that the current disruptions to supply chains persist, prolonging the period of higher inflation and contributing to a shift up in inflation expectations. If so, policy interest rates in major post at 9:30pm: RBA: HOUSEHOLD DEBT TO INCOME RATIO IS HIGH, INCREASES SENSITIVITY TO RISING RATES #News #Forex #DEBT #RBA post at 9:31pm: RBA FINANCIAL STABILITY REVIEW: GLOBAL ASSET MARKETS ARE VULNERABLE TO HIGHER-THAN-EXPECTED RATE HIKES. post at 9:34pm: RBA FINANCIAL STABILITY REVIEW: AUSTRALIAN BANKS ARE WELL CAPITALISED AND HAVE A LARGE STOCK OF LIQUID ASSETS.

Globally, financial systems have remained resilient – despite the ongoing effects of the COVID-19 pandemic – and are supporting economic recoveries. Aided by expansionary fiscal and monetary policies, output has rebounded in most economies, particularly those with a more progressed vaccination rollout. Improved economic conditions have seen increased earnings for businesses and households, strengthening balance sheets and debt repayment capacities. As a result, banks’ loan losses have been much lower than was expected early in the pandemic. Many banks have therefore been able to reduce the provisions they were holding against future loan losses. This has boosted banks’ profits and improved their capital positions, which in turn has allowed regulators to remove restrictions on capital distributions. post at 8:31pm: RBA: BORROWER PAYMENT PROBLEMS HAVE USUALLY DECREASED, BUT THEY STILL POSE A THREAT TO FINANCIAL STABILITY. post at 8:32pm: RBA: WHEN THE ECONOMY PROGRESSIVELY REOPENS, IT IS ENVISAGED THAT PRODUCTION WOULD RETURN, DECREASING THE DANGER TO THE FINANCIAL SYSTEM. post at 8:32pm: RBA: THERE HAS BEEN AN ACCUMULATION OF SYSTEMIC DANGERS LINKED TO HIGH AND GROWING HOUSEHOLD DEBT. post at 8:33pm: RBA: IT'S NEARLY CERTAIN THAT A MAJOR FINANCIAL INSTITUTION'S CYBER DEFENSES WILL BE PENETRATED AT SOME TIME.