An increase in prices for financial services was a desired outcome for the Reserve Bank when it implemented tighter regulations in the sector, says assistant governor of financial markets Guy Debelle.
Adressing the Centre for International Finance Regulation yesterday, Debelle said the price of financial services and intermediation was too low prior to the GFC.
“A number of the regulatory changes in financial markets have increased the price of financial intermediation and the provision of financial services generally,” said Debelle.
“This has very much been the intent, and not, to re-use one of the most overused expressions around at the moment, an unintended consequence.”
The consequential drop off in usage of these services was also the intended effect of the changes, said Debelle.
“The price of intermediation was too low before the crisis; now it is higher. It was too low in the sense that risks were underpriced. These risks include liquidity risk and counterparty risk. Reforms such as the Basel III liquidity reforms or the OTC reforms are aimed at ensuring these risks are more appropriately priced.
“As financial institutions are adapting to these reforms, they are repricing many of the services they are providing to take fuller account of these risks. This repricing is gradually occurring only now in many cases and there is more to come. Hence end users of these services are only now starting to see the impact of these reforms in the form of higher prices.”