(30 June 2011 – Australia) Reserve Bank of Australia (RBA) assistant governor (financial markets) Guy Debelle has said central banks have an important role to play in being a last resort lender for the banking system.He said the quality of a bank’s assets is the most important factor in assessing its solvency, with particular importance after the recent global financial crisis (GFC) and the failure of some large institutions and the bailouts that followed.
‘Financial institutions are now in a funding-driven world,’ he said.
‘They can no longer assume that the funding will be readily forthcoming at a given price.’
While a central bank’s role as lender of last resort was important, commercial banks needed to hold an adequate amount of collateral to get those funds, Dr Debelle said.
That reinforced the importance to keep the focus on the quality of assets and the banks’ lending, he said.