Reserve Bank of Australia publishes review of financial stability

The Reserve bank of Australia (RBA) has stated in its review of financial stability that the Australian banking system remains well capitalised and highly profitable, with bad debt levels that are low by both historical and international experience. Yet despite healthy global markets, the RBA acknowledged that pricing risk in the financial system still presents problems.

According to the RBA, in global capital markets two main issues include the persistence of low long-term bond yields and compressed credit risk premia: “Both these phenomena reflect, in part, the ex ante excess global supply of saving over investment and an associated ‘search for yield'. They also reflect an apparent optimism by investors that inflation will remain low and economic conditions will remain generally stable.”

RBA claims that this optimism encourages some investors to take on