Plunging real estate prices and uncertainty in the global banking sector run the risk of creating a damaging loop between the financial sector and the economy, the Reserve Bank of Australia has warned.
'The problems in the global financial system are proving to be much more pervasive and costly than was anticipated by many observers a year ago,'' the RBA said. ''The recent difficulties have been compounded by a straining of the bond of trust between many banks and investors.''
''Given the difficult the difficulties with valuing structured credit products, many investors remain wary about the valuations being used by banks.''
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