Australia's financial system remains strong despite the continuing global credit crisis, according to the governor of the Reserve Bank.
Speaking at a financial markets conference in Sydney this morning, Glenn Stevens said while the local financial community had "certainly been affected by the global turmoil" it was "weathering the storm well."
"Profitability remains very strong and capital sound,'' he said.
"There is very little direct exposure to the United States subprime problems, but the main reason for the resilience is many years of robust economic growth, sound regulatory foundations, and prudent risk management.
"The Reserve Bank has been carefully monitoring access to funding, including offshore funding.
"We judge it to have been more than adequate, even if more expensive, though, of course, we will continue to watch the situation closely."
Mr Stevens was speaking before the release of the Reserve Bank's Financial Stability Review, which is expected to underpin his comments.
But Mr Stevens signalled it was too early to forecast an end to the credit crisis.
"Key segments of credit markets remain in difficulty. There have been few, if any, issues of mortgage-backed securities in recent months, though the commercial paper markets have at least stopped contracting," he said.
Mr Stevens also attempted to deflect criticism of banks which have raised their interest rates independent of the Reserve Bank because of the higher cost of money on global markets.
"The presumption that their lending rates would and should move only in line with the cash rate, which had arisen in an earlier period when all these rates were much more closely related, has not been a realistic one in the recent environment," Mr Stevens said.
"Of course, in setting the cash rate, the Reserve Bank has taken account of these shifting relationships, just as it does shifts in other relationships in the monetary transmission mechanism."
Source: By Australian Broadcasting Corporation
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