In the bi-annual Financial Stability Review (FSR), released today by the Reserve Bank of Australia (RBA), the RBA has gone to great pains to explain and endorse APRA’s wet lettuce approach to prudential regulation of mortgage risks:
Recent trends in housing and mortgage markets have raised some concerns about the level of risk being taken by authorised deposit-taking institutions (ADIs) and households… In response to these concerns, the Australian Prudential Regulation Authority (APRA) announced measures in December 2014 to reinforce sound housing lending practices. At the same time, the Australian Securities and Investments Commission (ASIC) announced that it will review whether mortgage lenders’ interest-only lending complies with their responsible lending obligations. These actions were taken following discussions with member agencies of the Council of Financial Regulators (CFR), and build on the increased supervision and communication on housing market risks that CFR member agencies have been engaged in over the past year or so…
