The shock finding of the Banking Royal Commission could lead to an economic downturn if there was a significant regulatory response according to UBS economists.
Of course this could land a significant blow to house prices.
“While a tightening of mortgage underwriting standards is prudent, especially as the banks move to fully complying with responsible lending, it has a material impact on the economy,”UBS economists George Tharenou and Carlos Cacho were reported as saying in Domain.
“It must be remembered that house prices are determined by the demand and supply of credit (not the demand for and supply of housing).”
The first two weeks of the banking royal commission brought out nastier shocks than most expected including evidence of bribery, fraud, failure of internal controls, systemic issues and failures to report misconduct.
It’s not time to panic yet.
While more revelations will come out in due course, and some Australians have taken on a bit more debt than they can handle, in general our banking system is strong and on the whole mortgage serviceability of the average household remains strong.
There is no evidence that the ‘liar loans’, (I explain these in the video above) or the lax lending criteria have caused any major concern for the banks as mortgage arrears remain low and the fundamentals for our economy remain strong.
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