The Reserve Bank of Australia (RBA) has warned banks not to let lending standards fall as the financial sector could be shaken from any debt blow out under a housing price correction. In its biannual financial stability review (pdf), the central bank stressed the importance of the financial sector avoiding excessive risk-taking in the form of looser lending standards or relaxation of internal limits. “Even if lenders do not weaken their own settings, increased risk-taking by optimistic borrowers could see a deterioration in the average quality of new lending,” the review said. “This would weaken the resilience of businesses and households, and so the financial system, to future shocks.” It warned that a sustained period of rising prices could lead to “over-exuberance” and “extrapolative expectations which could cause a weakening of lending standards could weaken, causing prices to be pushed above their actual values. “A correction in asset prices, if …