Tuesday 12th July 2016 - 4:48 pm

Borrowing “not immoral” RBA chief

by Alan Thornhill

 

Too little credit can present risk to an economy, a Reserve Bank chief warned today.

 

Luci Ellis,who heads the bank’s financial stability department said this is something policymakers need to keep in mind.

 

Addressing a seminar in Sydney, Ms Ellis said the dangers of too much credit are well known.

 

“Over-exuberant lending and borrowing can mean that some people are getting loans that they have little prospect of being able to repay even in good times,” she said.

 

But she added:  “Less well appreciated are the costs of having too little credit available.

 

“The point here is simply that in recognising that too much credit can be dangerous, we should not instead fall into the trap of thinking of all borrowing as illegitimate or somehow immoral,” Ms Ellis said.

 

“Less credit isn’t always and everywhere better.

 

“ The low levels of credit available in economies in the regulated era of past decades are not the benchmark we should be evaluating ourselves against now when we try to assess the risk in the system.”

 

“ Some activities can and should be financed with at least some debt, even in bad times – even though there are plenty of others that should not.”

 

Ms Ellis then said:  “in their efforts to protect the real economy, policymakers need to ensure that credit is still being supplied to good borrowers even in bad times.

 

A healthy and resilient banking sector can help achieve that;” Ms Ellis said

 

“Indeed, it would be difficult to manage it without one,” she added

 

She said though that Australia is not facing a credit squeeze.

 

“Let me be clear that Australia is not anywhere near having this problem,” Ms Ellis said.

 

“Whatever the concerns about concentration and competition in the Australian financial system, there is plenty of finance readily available to lower-risk customers.

 

“ But some recent examples overseas show the damage that can be done when there isn’t enough credit available


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