RBA backs FSI’s concerns over leveraging in super
The Reseve Bank of Australia has told the Financial System Inquiry it supports the consideration of limiting leverage in superannuation.
In its response to the FSI’s interim report, the RBA endorsed the observation that leverage by superannuation funds may increase vulnerabilities in the financial system.
“As emphasised in the Bank’s initial submission, the general absence of leverage in superannuation was a key source of resilience in the Australian financial system during the financial crisis,” the submission stated.
“Furthermore, the compulsory and essential character of retirement savings implies that it should remain largely unlevered.”
The RBA also noted that the use of leverage by superannuation funds to enhance returns has been mainly taken up by SMSFs.
“The Bank has previously commented on the risks that may arise from geared property investment through SMSFs, which may act as an additional source of demand that exacerbates property price cycles,” the RBA stated.
“Nonetheless, some limited leverage for liquidity management purposes may be appropriate.”