Regulatory reforms will act as a stabiliser in less certain economic times, the Reserve Bank of Australia says.

Speaking to the Financial Services Institute of Australia on Tuesday, RBA assistant governor (financial markets) Guy Debelle said reforms to Australia’s banking system – including the Basel III proposals – would not have as great an impact as expected.

“Regulatory reforms have often served to reinforce changes resulting from a self-reassessment or resulting from market pressures,” he said.

“While these forces have all been working in the same direction in the current environment, the regulatory reforms will aim to ensure that these changes to a more stable financial structure endure when the environment is less conducive to self-discipline and as market pressures abate.

“In the good times, self-discipline can falter under the weight of competitive pressures, as can market discipline – hopefully in those circumstances, the regulatory framework will continue to impart the necessary restraint.”

Dr Debelle said there should be no surprise that the price of financial products would change under the reforms.

“It is important to remember that the intent of the regulatory reforms is to alter the incentives for financial institutions and thereby bring about changes in behaviour,” he said.

“The prices of various financial products will change from their pre-crisis levels.

“This is not an unintended consequence, but a desired outcome.”

However, the RBA would consider this in setting monetary policy, he added.

“Where there has been an overall rise in the funding cost structure for intermediaries, the board is able to set its cash rate target to appropriately take into account the effect on lending rates,” Dr Debelle said.

“It is important to stress that the transmission of monetary policy is still very effective in Australia.

“Not only do lending rates respond to changes in the board’s cash rate target, there is no sense in which the aggregate supply of credit appears to have been constrained by the ongoing changes in ADIs funding patterns.”