Transcript of Question & Answer Session Australian Securitisation Markets: Responding to Change

The RBA seems to appreciate the role the non-bank sector plays in providing credit, but what is the optimal size and shape of the sector? For example, how many lenders, of what sort of scale and what sort of lending?

Thanks. That’s a very interesting question. The Reserve Bank is a very open-minded institution; we certainly don’t come in with any frame there as to what might be the ideal. Industry structures tend to work themselves out and certainly, at the moment, the non-bank lenders have shown that they provide a very useful service for borrowers and servicing market segments that would otherwise not be getting the attention that they do get. So this is obviously a benefit for the borrowers involved in those markets. It’s always a question of how far and quickly something should grow, when you’re balancing off efficiency and stability considerations. Certainly, at this point, the sector – while very important in the market segments that they operate in – non-bank lending is still overall not a large share of credit – around seven per cent of credit overall and around five per cent of housing credit – and so it’s not considered something of a risk in a systemic perspective.

Does the RBA anticipate growth in the SME securitisation market; and, if so, will it be predominantly an ADI or non-bank market?

Well, that’s an interesting question. I would have thought that this is one that perhaps all the industry participants here might have a closer view on, particularly after the discussions that you’re having today. Certainly, we have seen a high degree of flexibility in this market, and the non-banks have been quick to adjust their business practices and to enter new markets, either through acquisitions of businesses that the banks might not be so interested in or growing their own business in particular segments. And so, I think, what we have seen is great versatility of the non-bank sector. And the degree to which that will continue is one of the questions that I think will be up for deliberation this time next year. It will depend on a range of things: the funding conditions for the ABS market and also the degree of competition in the various markets that are under consideration there.

Thanks, Carl. Were the outcomes of the use of the TFF during COVID as expected; what were the adverse impacts, and what did we learn?

We can always learn a lot. It was certainly an unprecedented period, and the Bank, with interest rates approaching the lower bound, the Bank undertook this comprehensive package of unconventional monetary policy tools. And we do actively review our experience with all of those tools, and we’ll be doing the same with the Term Funding Facility once it’s all done and dusted and the money is repaid. But we can certainly point to the TFF achieving its objectives. It came at a time when there was great uncertainty and we needed to get interest rates lower to support borrowing activity and the economy through this extreme pandemic period. As one part of a comprehensive package, the TFF was successful in lowering funding costs across the economy and supporting growth in credit and the economic recovery, so the TFF has been successful in achieving its aims. But as said, when it has concluded, we will sit back and review all the tools. And this is something that the RBA Review has asked for as well: to consider all the unconventional policy tools and to consider a framework, should the circumstances ever arise where we might consider using them again.