Report to the Inquiry into Competition in the Banking and Non-Banking Sectors House of Representatives Standing Committee Inquiry – Recommendation regarding Reserve Bank Repos

In November 2008, the House Standing Committee on Economics presented its final report, Competition in the banking and non-banking sectors.^[1] In the report, the Committee commented on the use of Reserve Bank repurchase agreements (repos) as a means of providing longer-term funding for the mortgage market.

If repurchase agreements were to be used effectively in adding liquidity to the mortgage market over a longer term, the RBA would need to provide certainty of funding for a much longer period than is presently the case.

The Committee further noted:

The RBA repurchase agreements are an effective tool for adding short term liquidity to the market. However, there is still a concern that expanding the repurchase agreements by extending their term to maturity even further may place additional unnecessary risk on the RBA.

The committee believes that while there is merit in the proposal to make repos a long term funding option, further study on whether this will place additional risk on the RBA needs to be undertaken.

This led to Recommendation 2 in the Committee's Report, which was directed to the Reserve Bank:

The Committee recommends that the Reserve Bank of Australia examine the appropriateness, feasibility and risks of expanding the repurchase agreements by extending their term to maturity even further and provide a public audit report within six months. The report must be made available to the Committee for review.

Footnote

House Standing Committee on Economics, Competition in the banking and non-banking sectors, Canberra, November 2008. [1]