While reports from the IMF and RBA stress that Australia’s financial system remains solid, the international crisis has cast a growing shadow over the domestic market.
From Bear Stearns and Lehman Brothers, to Wachovia and the UK’s Bradford and Bingley, previously unimaginable corporate failures highlight an international financial system in disarray.
Concerns from our own mortgage industry over the impact of the deteriorating overseas situation were reflected in the latest Mortgage Business straw poll.
Of the 446 respondents, 63 per cent said they feared Australian lenders would not be shielded from worsening global conditions.
Fariborz Moshirian, professor at UNSW’s Australian School of Business, told Mortgage Business that turbulent financial conditions had all but dried market liquidity, making raising new funds increasingly difficult for Australian lenders.
“As access to capital is now international...Australian banks have been affected by the shortage of liquidity and unwillingness of banks to lend to each other,” he said.
However while Mr Moshirian was concerned about the cost of funds, he said yesterday’s agreement by the US senate on a revised rescue package should, if passed mean “increased liquidity in the global financial markets from next week”.
Mr Moshirian also believes the Australian government’s plans to purchase $4billion RMBS from the market was a significant step in boosting much needed liquidity for mid and lower tier lenders.
“Smaller players have not had access to international funds at cheap rates and have since lost their market share to large banks,” he said.
“The government’s scheme will provide a new source of funds for these small players to sell new home loans.”
In addition to improving liquidity in the short term, Mr Moshirian said introduction of the scheme may also have a stabilising effect on the market.
“This initiative could also encourage private investors to come in and bring more capital into home loan market via these small players.”
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