Is a financial crisis looming?

The most likely consequence of the rapid build-up of household debt over the past decade is a number of years of softer GDP growth and lower interest rates than widely expected. But the risk of a more painful consequence, namely a recession or a financial crisis, has risen. There’s a danger that the Royal Commission investigation into the banks results in a slump in credit growth that causes house prices to fall sharply and the economy to weaken which, in turn, casts doubts over the quality of banks’ assets.