The systemic importance of the Big Four banks meant they needed to have “a proportionately greater supervisory focus” according to an RBA assistant governor.BIG Four bank rivalry and their refusal to back down on interest-only loans forced the crackdown on property lending, according a high ranking RBA official.RBA assistant governor (financial system) Michele Bullock told Friday’s Economic and Social Outlook Conference that large banks pose particular risks that required strong prudential regulation and proactive supervision.“The actions taken on housing lending in Australia over the past few years are an example of how active supervision can address risks that might arise in an environment of heightened competition,” she said.“Over the past few years, the regulators had observed very strong growth in lending to investors for housing. Furthermore, a large share of that lending was interest only for the first five to 10 years of the loan – that is, the loans were not being amortised for a very long time.More from newsMould, age, not enough to stop 17 bidders fighting for this home3 hours agoBuyers ‘crazy’ not to take govt freebies, says 28-yr-old investor3 hours agoA surge in interest only investor loans was the first warning sign for regulators. Pictures: Jack Tran / The Courier Mail“And this behaviour was being fuelled by competition between the banks. Individual banks were reluctant to pull back because if they did so, the business would go to their competitors.”Ms Bullock said that “raised concerns about financial stability implications if this behaviour continued”.The 10 per cent ‘speed limit’ on growth in investor housing credit, tighter lending standards, work on responsible lending and a limit on the share of interest-only loans in general were all results of the bank build-up.“The concerns that prompted action were not about competition on interest rates or customer service standards. Rather, the concern was that competition was manifesting itself in an erosion of lending standards.“Not only were the banks taking on more risk, but households were carrying a higher level of debt that they would have to service, which could be particularly concerning in the event of a shock. In other words, it was a financial stability issue not only because of its potential impact on banks’ balance sheets, but also because it was increasing the vulnerability of the household sector.”Ms Bullock said the systemic importance of the Big Four banks meant they needed to have “a proportionately greater supervisory focus”.The cash rate target was retained at 1.5 per cent this month, with the next RBA monetary policy meeting set for just over a week’s time on July 1.