The clamp on interest-only loans cut even deeper over the final quarter of 2016, with the share of approvals for new IO loans down to around 16 per cent in the quarter, the RBA disclosed in its half yearly Financial Stability Review.But banks have since ramped up the supply of a loan product demonised by financial regulators only one year ago, and rationed by all banks since.At 16 per cent of all mortgage funding over the December quarter, this was "the lowest share in over ten years and well below both the 30 per cent benchmark and its peak of 44 per cent in late 2014," the RBA said.This metric is lower than the preliminary estimate shared by APRA in February for this period, of around 20 per cent.Paired with APRA earlier guidance on a ten per cent benchmark for the growth of ADIs' investor lending, "these measures have worked to moderate the risks that had been emerging in household mortgage debt," the RBA declared. Banks pushed around in a market with proven demand are now eager to pump up supply, the FSR relates."Given the very sharp fall in new interest-only and investor lending, some banks have indicated that they have room to grow this type of lending and there have been some targeted reductions in interest rates for particular segments," the RBA said.It elaborated: "Regulatory measures and improvements in lending standards have contributed to a significant improvement in the risk profile of new lending over the past couple of years, and so stemmed the deterioration in the resilience of household balance sheets."The RBA took a mostly sanguine view of the risks from the stock of existing home loans. "Non-performing loans in states with more mining activity have increased, reflecting increases in unemployment and weak income growth … in other states, the non performing share of housing loans has been steady, indicating the potential risks associated with the quality of earlier lending have not materialised to date."Debt servicing ratios, a prime topic for some analysts, have increased, though "survey measures continue to suggest that, in aggregate, the incidence of household stress is relatively low," the RBA said.Moreover, the HILDA survey and the 2015/16 Household Expenditure Survey "also indicate that the share of households experiencing financial stress has been the lowest since at least the early 2000s," the RBA said.Interest-only loans may unsettle banking and regulators yet.The RBA labelled "one area of potential concern" the number of  borrowers approaching the end of their current interest-only period.The FSR explained that much of the large stock of IO loans is "due to convert to P&I loans between 2018 and 2021, with loans with expiring IO periods estimated to average around A$120 billion per year or, in total, around 30 per cent of the current stock of outstanding mortgage credit. "The step-up in mortgage payments when the IO period ends can be in therange of 30 to 40 per cent, even after factoring in the typically lower interest rates charged on P&I loans.""However, a number of factors suggest that any resulting