Reserve Bank of Australia governor Glenn Stevens yesterday put the case for limiting support provided to small lenders.In the RBA's prepared statement for the Senate's bank competition inquiry, delivered in Sydney yesterday, Stevens argued an era of cheap lending ended as the market price of risk rose in 2007 and 2008."The market price of risk having risen, various players want the public purse to take on some of this higher price through various forms of support or regulatory change," he said.Stevens said ideas for lender support should be assessed on their merits, but added: "In some instances at least, it would appear the taxpayer is being asked to shoulder more risk, one way or another, in order to facilitate the provision of private finance.""Whether, and in which areas, that might be a good idea - and if so how much might be charged for such support - is, of course, for governments and legislatures to determine."During questioning from senators, Stevens said public support for particular types of lending should be done "with great care". Citing the US as an example, he warned that "there can be, and there usually are, unintended policy consequences down the track, and we should be quite careful about how we assess these things."Stevens' comments were aimed at smaller lenders and others who have argued for additional funding or government guarantees for the market in residential mortgage-backed securities.Stevens said risk had been underpriced for some years before 2007, perhaps in part because investors didn't understand the risks they were taking. So, financial institutions of all types could get ample funding cheaply and this could be passed on to their borrowers."Business models that took particular advantage of low-cost wholesale funding and/or securitisation were able to provide a very competitive edge to certain markets, particularly (though not only) to markets for mortgage lending.""The increase in costs has affected all financial institutions but to varying degrees. As such, it has also affected the competitive landscape. Some business models that did well in the earlier state of the world find it harder going now. Part of the competitive advantage they had has been eroded by market developments."The current relationship between variable mortgage rates and market funding costs is making it more difficult than it used to be for the lenders relying on securitisation to compete with the major banks."After his prepared statement, Stevens spent some of his time before the committee avoiding responding to questions from Family First senator Steve Fielding on whether banks were "ripping off" customers. He did say banking was "a good deal more competitive than it was in the 1990s".He also defended his decision to recommend the Australian Competition and Consumer Commission let the Commonwealth Bank buy Bankwest from its troubled HBOS parent in 2008."In the environment that we were in, you don't want an institution with a weakened parent to be sort of twisting in the wind while they work out in the UK what they are going to do," he told the committee.