Glass
30th August 2010, 10:26 PM
RBA calls for rules to curb leverage in global banking
Regulations to restrain leverage in the global financial system will be needed to lessen the risk of another financial crisis, Reserve Bank of Australia assistant governor Guy Debelle says.
Mr Debelle in a speech today also said that central banks and governments would have to remain as lenders of last resort when the financial system as a whole is under pressure.
Mr Debelle, who heads the RBA's financial markets division, said rules currently being thrashed out in the Basel reforms were aimed at limiting the leverage of financial institutions, while providing a more robust funding structure and enhancing their capital buffers.
"Leverage played the major role in translating events which would have been somewhat damaging, but survivable, into events which were fatal," said Mr Debelle.
"But in terms of insurance of the system as a whole, at some point, it has to be provided by the public sector," said Mr Debelle in a speech on risk and uncertainty.
"It would be excessively costly for the financial sector to hold enough capital and liquidity to enable it to survive a freezing of capital markets of the type that occurred in 2008."
Financial services were too important to the economy for the government not to come to the rescue, even if this was unpopular with tax payers.
link......... (http://www.theage.com.au/business/rba-calls-for-rules-to-curb-leverage-in-global-banking-20100831-148od.html)
Regulations to restrain leverage in the global financial system will be needed to lessen the risk of another financial crisis, Reserve Bank of Australia assistant governor Guy Debelle says.
Mr Debelle in a speech today also said that central banks and governments would have to remain as lenders of last resort when the financial system as a whole is under pressure.
Mr Debelle, who heads the RBA's financial markets division, said rules currently being thrashed out in the Basel reforms were aimed at limiting the leverage of financial institutions, while providing a more robust funding structure and enhancing their capital buffers.
"Leverage played the major role in translating events which would have been somewhat damaging, but survivable, into events which were fatal," said Mr Debelle.
"But in terms of insurance of the system as a whole, at some point, it has to be provided by the public sector," said Mr Debelle in a speech on risk and uncertainty.
"It would be excessively costly for the financial sector to hold enough capital and liquidity to enable it to survive a freezing of capital markets of the type that occurred in 2008."
Financial services were too important to the economy for the government not to come to the rescue, even if this was unpopular with tax payers.
link......... (http://www.theage.com.au/business/rba-calls-for-rules-to-curb-leverage-in-global-banking-20100831-148od.html)