The results of the testing also showed that households with "negative financial margins" declined by from 12 percent to 8 percent between 2002 and 2010.
These households tended to have lower incomes, be younger and live in rental accommodation;, and therefore these groups also tend to hold a relatively low proportion of the total household debt.
Therefore lenders’ exposure to households with negative financial margins appears to have remained limited and any losses to be expected have remained fairly low.
Noted the paper:
"This suggests that aggregate measures of household indebtedness may be a misleading indicator of the household sector’s financial fragility".
The Reserve Bank's models ran "Monte Carlo" simulations of unemployment shocks and other adverse outcomes.
Upon application of shocks to the model, here was the conclusion:
In fact, expected loan losses are actually lower under the less severe of the two scenarios, which has rising unemployment and falling asset prices comparable to Australia’s experience during the financial crisis.
This was due to the offsetting effect of lower interest rates, highlighting the potential for expansionary monetary policy to offset the effect of negative macroeconomic shocks on household loan losses.