It’s now clear the Reserve Bank’s priorities have shifted from the health and strength of the financial system, towards the first rate rise to come.

The second Financial Stability report for 2009, released this morning is very different in tone and content from the first one in March, when we and the world were still cowering, wondering if the tsunami that rolled across the word from mid-September 2008 onwards, would immerse us or recede.

Recede it did as markets regained their poise; following multi-year lows touched around March 9. So strong has been the rebound that some equity markets are up 50%: Asia is rebounding, dragged forward by China, and that includes the Australian economy (and New Zealand, as we learned yesterday is back in positive territory).

Now the big policy questions for the bank are the everyday ones of inflation, resources, bottlenecks, government, business and private spending, aggregate demand, unemployment and the most appropriate level for interest rates.

In contrast, the US Federal Reserve overnight confirmed that its economy was recovering, but said the many programs designed to help the economy, business and consumers, would remain in place, with interest rates remaining at their current rates of 0% to 0.25% for “an extended period”. in other words, the US economy remains very weak, and despite the rally in markets and bank shares, financial groups are not yet clear of the woods there.

In Australia, the RBA has moved beyond that as it has become increasingly confident the global economy had survived the battering, and Australia has emerged from the tumult intact.

Now, relegated to committees here and internationally, and to discussions with industry are the big policy questions of new rules for banks, bank remuneration, capital levels, capital types, and failure.

The recovery in confidence and re-emergence of risk as being acceptable to investors means the RBA and other central banks no longer have to worry about what happens if a bank that is too big to fail, does.

So in the latest financial stability report, the RBA is much more sanguine:

In summary, global financial conditions remain challenging. But, while further setbacks cannot be ruled out, the severe downside risks that loomed six months ago have significantly abated.

The resilience of the Australian financial system through the crisis period has reflected a combination of factors including the comparatively mild nature of the overall economic slowdown in Australia, the absence of large-scale exposures to structured securities, and relatively conservative lending practices, particularly for housing.

While loan losses may rise further in the current environment, Australian banks remain better placed than their counterparts in many other advanced economies to weather any further adverse developments in the global financial system.

The report discloses that home loan arrears rose again, but at a more subdued rate. While rates on no doc or lo doc non conforming loans remain high , these loans are only about 0.50% of all housing loans.

The bulk of the home lending either remains on the banks’ books, or have been securitised:

By loan value, the share of non-performing housing loans on banks’ balance sheets was about 0.6% in June, and about 0.9 per cent for securitised loans. Although these rates are higher than the low points seen in the earlier part of this decade, they are still low relative to international experience,

In aggregate, it is estimated that currently about 25 000 households are 90 or more days in arrears on their housing loans, compared with a (revised) estimate of about 23 000 at the end of 2008.

Across all housing loans in Australia, it is estimated that about 20,000 borrowers were 90 or more days behind on their mortgage repayments in December 2008, compared with an estimate of 13,000 the previous December.