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The stretched rubber band: banks, houses, debt and vulnerability in Australia

Policy Online carries a link (13.10.16) to a blog post by Tom Conley which suggests that there are inherent vulnerabilities in the Australian financial system.

‘The financialisation of the Australian economy has led to a cascading series of vulnerabilities in the Australian financial system, beginning with the domination of banks in the financial system, the preponderance of the big four banks in the banking system, the weight of real estate in the balance sheets of the big four banks and the explosion of household debt.

‘Ultimately, the fate of the Australian financial sector – and the fate of the share market and the wider economy – sits precariously on the precipice of over-inflated property markets and debt-ridden households. The debt-house-price-nexus in Australia is like a stretching rubber band. A stretched band can either be relaxed gradually or it can be stretched further until it breaks.

‘Achieving the aim of a balanced financial system requires policy-makers to note the vulnerabilities building up in the Australian financial system and to work to reduce them over time. I argue, however, that financial policy-makers have underestimated the financial vulnerabilities building up in Australia as evidenced by the slow take-up of macroprudential policies and their complacent statements about growing risks.’

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