Reserve Bank points to challenges for finance sector

The Reserve Bank (RBA) has sent a message to financial institution that they are going to have to focus more intently on the adequacy of their funding liquidity over longer time horizons.

The Governor of the Reserve Bank, Glenn Stevens, used an address to Sydney economists last night to point out that efforts were underway globally with respect to introducing a new global standard for funding liquidity.

“This is likely to require financial institutions to focus on adequate funding liquidity over longer time horizons, as well as resilience to more demanding stress scenarios,” he said.

Stephens also pointed to the fact that other financial entities such as hedge funds which had escaped close regulatory scrutiny were now being subjected to more oversight.

“The regulatory perimeter is being extended,” he said. “Some of the relatively less supervised institutions that were problematic prior to the crisis no longer exist — for example, US investment banks failed, or were converted into, or assumed by, regulated banks.

“But other institutions whose actions could on occasion be of systemic importance, such as hedge funds, are being subjected to more oversight,’ Stevens said.

The Reserve Bank Governor also pointed to the problems associated with financial institutions deemed “too big to fail” and canvassed the possibility of a tax being imposed based on size or, alternatively, more intrusive regulation.

He said either way, furious lobbying from the finance sector could be expected.