The RBA's Luci Ellis gave a solid speech on financial stability today. It was much more orthodox than I was hoping, and the warnings about providence and the role of luck in determining Australia's good fortune in avoiding the worst of the crisis were almost entirely absent. I do find that rather odd: ie, the patent unwillingness of Australian regulators to publicly recognise luck--be it our resources endowments, the absence of overseas exposures in the deposit-taking system due to strong domestic demand, our very high population growth rate, the relatively delayed development of higher risk lending practices amongst the banks, the change in our trading partner mix to a Chindia focus, and so forth--as being a little concerning, to say the least. There was, however, one very nice passage:
"Focusing only on capital would be like saying that all we needed to do to stop people being injured in car crashes was to ensure they all had big enough airbags. But bigger airbags are not enough. We also need safer driving, diligent policing and better roads.
For safer driving, we need to look to the people behind the wheel. As my colleague Guy Debelle recently pointed out, in the lead-up to the crisis, financial institutions had been seriously underestimating the risks they were running.[1] Since the crisis, they are being more cautious. But it’s a hard way to learn the lesson. And eventually memories will fade and the reckless driving will start again. Of course sometimes people are minded to drive more carefully if they think they might be booked. So we also need to encourage better driving with diligent policing."
