RBA Flags Financial Stability Risks From Private Market Expansion

Gerik

Summary:

The Reserve Bank of Australia (RBA) has warned that the global shift of financing toward private markets is making it harder for regulators to monitor and contain systemic risks...

Growing Concerns Over Private Market Boom

In its 2025/26 corporate plan, the RBA cautioned that the migration of capital from prudentially regulated banks to private equity, credit, and real asset markets reduces transparency and complicates oversight. The trend has been especially visible in Australia’s property sector, where private credit firms have aggressively expanded lending, raising the risk of financial vulnerabilities in case of a downturn.

This structural shift reflects global patterns, as investors particularly pension funds seek higher yields outside traditional banking. While such flows support capital formation, the RBA emphasized that they limit the ability of authorities to monitor and address financial stability risks, an issue that has been debated in financial centers worldwide.

Regulatory Alignment With ASIC

The warning came just two days after the Australian Securities and Investments Commission (ASIC) released its own four-year plan, highlighting priorities including systemic compliance failures and insider trading. ASIC Commissioner Simone Constant recently noted that private credit’s deepening role in real estate could create systemic shocks if left unchecked.

Together, the RBA and ASIC’s messaging signals a coordinated push to tighten surveillance of non-bank financial intermediation, which has grown rapidly in Australia and could amplify vulnerabilities during economic stress.

Broader Macro and Geopolitical Risks

Beyond private markets, the RBA also pointed to trade policy shifts and geopolitical tensions as factors likely to influence growth, inflation, and financial system resilience. Rising global fragmentation, whether through tariffs, supply chain reorientation, or political shocks, could dampen sentiment among households and businesses and heighten risks of instability.

The central bank reiterated that such developments, in extreme cases, could have direct consequences for financial stability, underscoring the interconnectedness of domestic and international financial flows.

The RBA’s warning reflects a balancing act: encouraging innovation in capital markets while ensuring systemic safeguards are not undermined. With pension funds pouring capital into private credit and property markets already under scrutiny, the next phase of Australian financial regulation may focus on bridging the transparency gap between banks and private lenders.

Source: Bloomberg

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