RBA Governor cautions finance industry

The finance industry - and large international institutions in particular - needs to be less exciting and growth driven and more conscious of risk and those carrying the risk, according to the Governor of the Reserve Bank, Glenn Stevens.

In an address to the University of Western Australia, Stevens pointed to the history of the financial services industry and the antecedents of the global financial crisis, and claimed there was a need to be concerned about the financial services industry becoming too large a part of the economy.

"The finance industry, certainly at the level of the very large internationally active institutions, needs to seek to be less exciting, less ambitious for growth, more conscious of risk and more responsible about where those risks end up than we saw for the past decade or two," he said.

As well, Stevens said that the finance industry needed to be better capitalised.

The Reserve Bank Governor also offered some advice to financial service regulators, suggesting that some needed to become "more intrusive and assertive, to be prepared to go beyond minimum standards and to be a little less concerned about the competition position of their own banks than they have been in the past".

"It has been not uncommon, for example, for Australian bankers to complain about the Australian Prudential Regulation Authority's (APRA) relatively strict rules on definition of capital for regulatory purposes, where other jurisdictions were more lenient," he said. "But the international supervisory community is at this moment in heated debate about what can and cannot be counted as capital and it is moving, belatedly, in APRA's direction."