|
Australian Bankers’ Association response to the Treasurer’s statement on the mortgage market
Sydney, 26 September, 2008: The Australian Bankers’ Association (ABA) notes the Commonwealth Government has announced it will be funding housing loans through the purchase of AAA rated mortgage securities, known technically as Residential Mortgage Backed Securities.
As previously stated in respect of this issue, the ABA member banks have differing views on the public policy merits of this sort of action.
This Government intervention has the benefit of boosting liquidity in the market, but does pose potential costs. For example, the initiative will expose taxpayers to the housing market, albeit this exposure should be small if properly managed.
When this proposal was first floated almost 12 months ago, the rationale aired was that without Government intervention, bank lending margins would widen.
In actual fact, the opposite has happened. Since the credit crisis, bank lending margins have fallen further. So, while there is a liquidity benefit to this initiative, there is no evidence to support that the action is needed to boost competition.
In the ABA’s view, there are two essential design features that should be followed:
- The Government should not attempt to ‘pick winners’ i.e. fund individual businesses in preference to others – this is a widely accepted principle of sound public policy; and
- The Government intervention should not support the supply of high risk loans. This can be a complex issue because even AAA rated securities can be derived from pools of housing loans that include high credit risk loans, known generally as ‘non-conforming’ loans (in the US known as ‘sub-prime’ loans).
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
END |
|
|
|