Reserve Bank's Ellis Says Financial Risk Must Be Tracked `As It Happens'

Bank regulators must coordinate efforts to detect concentrations of risk and leverage before they threaten global financial stability, a Reserve Bank of Australia official said.

“Alongside the goal of improving banks’ resilience through stronger capital and liquidity positions, there is the goal of improving the resilience of the system,” Luci Ellis, head of financial stability at the central bank, said in prepared remarks in Sydney today. “This means being alert to the possible connections between different parts of the financial system” and “detecting the buildup of risk-taking and leverage as it happens.”

Ellis, in the text of her speech, didn’t address monetary policy or Australia’s economy. Her comments come a day after the Basel Committee on Banking Supervision said banks will have until 2015 to fully implement rules on how much cash and liquid securities they must hold to gird against a funding shortage in a crisis.

The rules are part an overhaul of bank capital requirements the committee is working on to prevent another financial crisis. Ellis said timely information is the key to better oversight.

“Regardless of whether the supervisor is inside or outside the central bank, it is important it shares information readily with the team in the central bank that is responsible for monitoring the stability of the financial system as a whole,” Ellis told the Finsia Annual Conference.

The RBA said last month in its half-yearly financial stability review that Australia’s financial system remains in strong condition as the nation’s four largest banks reported a 15 percent surge in earnings after “fully recouping” higher funding costs caused by the global crisis.

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