Australia after the Global Financial Crisis

Discuss what has happened to the amount of securitized asset in Australia after the Global Financial Crisis

Asset securitization is the financial practice of pooling various types of contractual debt, such as mortgages, auto loans or credit card obligations into tradable securities. This type of practice has been used globally in other countries and Australia’s financial institutions during trading for a number of years. The Australian economy mostly used Residential Mortgage Backed Securities (RMBS). In 2008, the Global financial crisis saw big financial institutions, like the Lehman Brothers, collapse. The financial crisis highlighted significant inadequacies in the securitization practice globally. The economy has struggled to come out of the crisis, and has been doing fairly well (Griffiths, p.4-5).

Australian RMBS reduced by 70% from A$49.4 billion to A$14.1 billion in 2009. The financial crisis reduced the value of households by ten percent. In a bid to curb this, the government offered support to these financial institutions (Griffiths, p.6). The Australian Federal government became a major buyer of these RMBS after the Global Financial Crisis. It bought these securities through the Australian Office of Financial Management’s (AOFM) purchasing program. By this move, the AOFM ensured that there was competition amongst the mortgage providers, particularly those who were affected by the financial crisis (Griffiths, p.8). This enabled the institutions to be in operation.

With the reduction in financial sources, some credit institutions sold their client’s credit cards obligations to other financial institutions. This enabled liquidity for the selling institution. In a bid to increase trading, the federal system made amendments to its law. The new law permitted the funder to seek resources through the borrowers’ other assets, including future income, in addition to the collateral of the RMBS collateral. This is referred to as speculative trading. More securitized assets were made through this move.

The availability of securitized assets enabled the Australian economy pull through the Global Financial Crisis. Though the securities have been greatly reduced in value, and are minimally being traded in, they provided a cushioning during the financial crisis (Griffiths, p.5).

Reference:

Griffiths, A, 2011, Securitization: Australian Residential Mortgage Backed Securities, Vivid Publishing.