The Government rejected only one recommendation of the Financial System Inquiry, which was that it should restore the general prohibition on direct borrowing by superannuation funds. The Government has made a good call.The FSI was keen to prevent the "unnecessary build-up of risk" in the superannuation system that it believed gearing would entail.It also wanted super funds to stick to their objective of being savings vehicles for retirement income, rather than "broader wealth management vehicles."FSI chair David Murray spoke on several occasions last year about the importance of superannuation as a source of financial stability during periods of volatility. He did not want a culture of risky borrowing to undermine that stability.Murray's problem was that he didn't present any compelling evidence to support his case.The Australian Taxation Office estimate for self-managed superannuation fund assets held under borrowing arrangements in the June quarter this year was A$15.6 billion, representing about three per cent of assets held by SMSFs (other types of funds don't gear their investments).SMSFs hold about one-third of total superannuation assets, so the level of geared assets in the super system is about one per cent.The FSI report focused on the rapid growth of borrowing by SMSFs in recent years, citing 18-fold growth between 2009 and 2014. However, that growth rate can be explained by the fact that borrowing has only been allowed since 2007.The latest figures indicate that the growth rate has levelled off. According to the ATO, assets held under borrowing arrangements grew by 3.3 per cent in the year to June (compared with asset growth of around six per cent over the same period).A loan taken out by SMSF trustees can only be used to acquire a single asset, must be limited recourse and the asset must be held in a separate trust until it has been paid for.These measures are designed to protect the other assets of the fund if the loan goes bad.The FSI argued that this protection mechanism would not be effective. It said: "In a scenario where there has been a significant reduction in the valuation of an asset that was purchased using a loan, trustees are likely to sell other assets of the fund to repay a lender."No evidence was put forward to give this speculation credence.It appears that Murray made a captain's pick on the issue and his recommendation has been dealt with accordingly.