FINANCIAL markets in Australia and Asia have withstood the turbulence of the past three years but risks remain in North Atlantic economies, a Reserve Bank official says.
RBA assistant governor of financial markets Guy Debelle said while risks still prevailed, regional markets had improved greatly over the past year.
"I do not see these downside risks in Australian or Asian financial markets but rather in the major North Atlantic markets of the US, Europe and the UK," Dr Debelle said in a speech at the Women in Finance Lunch in Sydney.
"Indeed, in Asia, the risks are more on the upside.
"While most of the recent jitters have been associated with sovereign concerns, I think risks stemming from the financial sector are still there."
Dr Debelle said the improvement in financial markets had allowed a sizeable portion of the interventions undertaken by central banks over the past three years to be unwound.
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"This is particularly true in Australia, where the measures we undertook were considerably less and have been unwound," he added.
Dr Debelle said he believed there was a significant risk the full impact of weakness in the North Atlantic economies had yet to be seen on the loans of the books of global banks.
"The bulk of the losses to date by these institutions have been write-downs in the value of securities held on their books," he said.
"For the North Atlantic economies, this was a big recession which, combined with large falls in both commercial and housing property prices, should result in large loan losses."
Dr Debelle said a significant increase in the balance sheets of the US Federal Reserve, European Central Bank and the Bank of England was yet to decline.
"The RBA did provide assistance to contribute to the smoother functioning of financial markets through the turbulence, but the assistance we were required to provide was considerably less than in other countries, and importantly, we have been able to unwind it as market conditions have improved," he said.
As well, the Federal Government's guarantee on wholesale debt and deposits allowed Australian banks to access capital markets and had been used extensively by local financial institutions.
"The need to use the guarantee for the most part reflected the high risk aversion of investors and was as much an issue of price as market access," he said.
"The guarantee allowed the banks to raise funds considerably cheaper than they could without it."
But the use of the guarantee has dwindled as risk aversion abated and credit spreads narrowed, Dr Debelle said.
"For some months now, for the major banks, the cost of issuing unguaranteed debt, particularly at shorter maturities has been no higher, and often lower, than the cost of issuing guaranteed debt once account is taken of the guarantee fee," he said.
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