RBA warns even best standards won’t work in economy-wide fallout

first_imgOne of the RBA’s most senior officials said the level of debt will come into play when the borrower is facing a large negative shock.EVEN the best lending standards won’t save the country if there was “a large, economy-wide shock”, warned one of the RBA’s most senior officials. RBA Assistant Governor Luci Ellis made the comment at the Australian Business Economists Lunchtime Briefing in Sydney midweek.More from newsMould, age, not enough to stop 17 bidders fighting for this homeless than 1 hour agoBuyers ‘crazy’ not to take govt freebies, says 28-yr-old investorless than 1 hour agoShe said in the event of “a large, economy-wide shock, even the best lending standards might not be enough to protect borrowers and lenders”.“At that point, the absolute amount of debt owed becomes the binding consideration.”Ms Ellis said high debt levels could make the next shock tougher for some.“If some other shock should come along, debt would make it worse,” she said. “Of itself, the level of indebtedness is unlikely to be a triggering factor that sparks a negative outcome.”Ms Ellis said recently created debt had better risk profiles because of action by regulators and lenders“The level of debt owed matters most when the borrower is facing a large negative shock,” she said. “Strong lending standards mitigate the effects of moderate shocks, and can help prevent a shock turning into a default event.”last_img read more