Second round submissions to the Financial System Inquiry have proposed a number of measures to limit borrowing by trustees of self-managed superannuation funds, as alternatives to banning the practice.Proposals include limiting the proportion of a fund's assets that can be geared, bringing SMSF lending products under the consumer protection provisions of the Corporations Act, and strengthening the prudential oversight of SMSFs.In its interim report, the FSI said the ability of funds to borrow (which has only been allowed since 2007) could erode the superannuation system's ability to act as a stabilising influence on the financial system during times of crisis.According to Australian Taxation Office data, at March this year SMSFs had a total of A$2.8 billion invested via the use of limited recourse borrowing arrangements. This represented 0.49 per cent of SMSF assets.The Reserve Bank agreed with the FSI, adding there was also a potential risk that geared property investment through SMSFs could act as an additional source of demand exacerbating property price cycles."The compulsory and essential character of retirement savings implies that it should remain largely unlevered," the RBA said in its second round submission.The Australian Securities and Investments Commission said that, in its work on SMSFs, it had seen an increasing use of leverage, often where the situation suggested it may not be an appropriate strategy. Westpac said the SMSF loan market was orderly but also acknowledged that there were systemic benefits to a large unleveraged superannuation savings pool, which could act as a stabiliser in times of stress. "This calls into question the leverage scope currently available to SMSFs," it said.Westpac is an active participant in the SMSF lending market and applies conservative criteria, including a maximum loan-to-valuation of 80 per cent for residential property and 65 per cent for business real property.It said: "The interim report also highlights that removing direct leverage in superannuation is consistent with the concept that superannuation tax concessions should apply to funds that have been saved and not borrowed. Westpac supports this observation."However, it recommended that any change to the requirements surrounding leverage should operate on a prospective basis.The Actuaries Institute said the answer lay in greater overall prudential oversight of the sector. Its submission said: "The current regulatory perimeter surrounding the SMSF market segment should receive further consideration. SMSF is a segment that currently manages assets in excess of $500 billion, yet it is lightly regulated by the Australian Taxation Office."There is a need to confirm that the level of prudential oversight for the sector is appropriate to manage the potential for systemic risk in the event of, for example, widespread inappropriate investment strategies such as excessive property gearing or large scale mis-selling."SMSF Professionals Association of Australia said a general prohibition was unnecessary. Instead, it recommended that fund trustees be protected by the financial consumer protections of the Corporations Act when entering into a loan.SPAA said it had worked with the major lending institutions to obtain loan data, as at November 2013. The data set of 14,783 loans accounted for