Australia is not at risk of falling victim to a US style recession, the Reserve Bank of Australia's Luci Ellis has claimed.
Speaking at the Australian Mortgage Conference in Sydney recently, the RBA's head of financial stability department said Australia, like many other countries, does not have the ingredients needed to create an outcome like that in the United States.
"If I may use an analogy: we know that the key to maintaining a healthy weight is to have a healthy diet and to exercise regularly. Yet we find it hard to avoid temptation. And so it is with maintaining a healthy mortgage market," Ms Ellis said.
"It is always tempting to ease lending standards, and dress that up as responding to competition or giving the customer a better deal. It must be hard to resist the disappointed customers who just want to borrow that bit extra to purchase their dream home, especially when the loan officer is also trying to make budget on new loan approvals. But in the experience of the United States, we have seen what can happen when lenders yield to that temptation."
Ms Ellis said if lenders were to ease lending standards beyond the point of prudence, they would not be doing anyone any favours.
"Their customers, the borrowers, would be overburdened by their debts. The firm themselves would face difficulties if loan defaults were to rise. And financial stability would be much harder to maintain," she said.
"I am pleased to say that I do not currently see signs of widespread lax lending practices here in Australia. Indeed, APRA has been consulting with the boards of the larger banking institutions about their housing lending standards. But there will be times – good times, when everything seems rosy – when lenders will find it hard to maintain the necessary prudence.
"While the regulators can take actions and central bankers like me can warn of the risks, in the end we all have a stake in maintaining financial stability. For financial stability is in the collective interest of all Australians."