On Thursday the central bank of Australia stayed fixed to their viewpoint that country’s lucrative banking system could face the international credit issue even though the funding costs have been pushed. RBA (Reserve Bank of Australia) is happy with the measures taken by American authorities to deal with bad loans, although it was noticed that much would be depending on the prices of American property and on the banks to maintain the investors’ trust.
The central bank in their semi-annual Financial Stability Review showed a formal cooperation contract between it, Australian Treasury on dealing with the financial issue, other controllers, along with the different methods to assist in ending a bankrupt institution. In their report of seventy-one pages, Reserve Bank of Australia has stated that they have gained from strong beneficial financial institutions those are having little problem assets on their balance sheets along with a healthy regulatory system.
It was also added that in spite of good performance, the prices of the bank shares are significantly down and funding costs have increased, and this has made the banks to stay more watchful. And due to this the banks’ holdings of liquid assets had gone up considerably while the deposit competition has become severe and standards for lending have been made strict. This has resulted in the reduced credit demand and has made the pace slower in the extension of the banks’ balance sheets.
Mainly, a sharp increase has been noticed in the lending rates amongst the banks following the bailout of insurer AIG and bankruptcy of Lehman Brothers Holdings. This has encouraged the American Treasury to request for 700 billion dollars of taxpayers’ money to purchase distressed debt. Reserve Bank of Australia in a statement said that fresh support by the American authorities will be appreciated.
On Wednesday Reserve Bank of Australia declared an all new swap provision worth $10 billion along with the support of Federal Reserve in boosting up the liquidity at the time of Asian trade. There is also a new scheme proposed under which the banks are supported to add more funds with Reserve Bank of Australia. It was noticed by Reserve Bank of Australia that Australian households had limited their demand for the current year’s credit. By the June end, a net worth drop of 613 percent of household disposable income was estimated by the central bank, in the previous year end it was approximately 669 percent.