AU RBA Financial Stability Review

The finances of many households and businesses in advanced economies continue to be resilient, despite ongoing pressure from tight monetary policy and inflation. This resilience has been supported by firm, albeit softening, conditions in labour markets, a stabilisation or pick-up in real household incomes, and solid corporate earnings. While there is a small but growing group of borrowers experiencing financial stress in these economies, a further easing in inflation − and with it, lower policy rates − is expected to support the ...

Financial market participants have been increasingly optimistic about the prospects for a soft landing in the global economy. A substantial easing cycle in monetary policy is expected over the next two years or so, with inflation returning to central banks’ targets and unemployment rising only modestly. Although pressures from high inflation and tight monetary policy continue to weigh on many households and businesses, a number of developments – including the resolution of supply chain disruptions, declines in energy prices, continued strength in labour markets, strong household balance sheets and solid corporate earnings – have contributed to the global economy’s resilience to date. The capital position of large international banks leaves them well placed to weather a decline in asset quality and/ or worsening macroeconomic conditions. However, several economies, including the United States, have a sizeable tail of smaller banks, some of which are more vulnerable due to asset quality and profitability concerns. Although risks to the outlook for the global economy have become more balanced as inflation has eased, risks to global financial stability remain. These risks have the potential to spill over to the Australian financial system, v post: RBA Financial Stability Review: Most Borrowers Seen Coping If Rates Stay Higher For Longer - Banks Expect Arrears To Rise A Bit Further But Remain Low post: RBA: HOUSEHOLDS HAVE TRIMMED SPENDING, ARE UNDERPINNED BY STRONG JOBS MARKET, SAVINGS BUFFERS post: RBA: GLOBAL RISKS INCLUDE CHINA PROPERTY, COMMERCIAL REAL ESTATE, ASSET PRICE CORRECTION, GEOPOLITICS

Global financial stability risks are elevated, reflecting challenging macroeconomic conditions. The increase in inflation and interest rates since 2021 has put pressure on household and business finances in Australia and around the world. It has also exposed vulnerabilities in parts of the international banking system, in some non-bank financial institutions (NBFIs) and in segments of global financial markets. Periodic episodes of stress in some economies, including the banking stress in the United States and Switzerland in March 2023, have required intervention by policymakers to support financial stability. Households and businesses in advanced economies have been largely resilient to date, despite a challenging set of economic conditions that includes high inflation, restrictive monetary policy settings and slowing growth. Low levels of loan arrears and high levels of capital and liquidity continue to support stability in the global banking system. However, global financial stability risks remain elevated. post: RBA: AUSTRALIAN FINANCIAL SYSTEM SOUND, SOME POCKETS OF STRESS AMONG HOUSEHOLD BORROWERS post: RBA: AUSTRALIAN BANKS WELL CAPITALISED, HAVE LOW EXPOSURE TO COMMERCIAL PROPERTY post: RBA: ANY INCREASE IN UNEMPLOYMENT WOULD ADD TO STRESS, BUT UNLIKELY TO THREATEN SYSTEM OVERALL

Global financial stability risks have increased despite loan arrears remaining very low. Some regional banks in the United States failed in March because of weaknesses in their business models and risk-management practices. Heightened risk aversion led to an increase in volatility in some financial markets and to liquidity stress transmitting to other parts of the international banking system. This culminated in the regulator-facilitated takeover of Credit Suisse by UBS, following a lengthy period of concerns being raised about ...