glenn stevens : “ reform ” and economic growth remarks by mr glenn stevens, governor of the reserve bank of australia, to the national reform summit, hosted by the australian and the australian financial review, sydney, 26 august 2015. * * * thank you for the invitation to take part in this very important discussion. it is pleasing to see so many influential people coming together for a discussion about the country ’ s economic future. in a sense, i am really an observer here, because the things you need to grapple with today are mostly outside my remit. australia ’ s monetary system is still – i trust – well supported by all the key stakeholders here. it has helped to deliver good outcomes. our financial sector is robust and stable. but a stable monetary standard and a strong financial system, while necessary conditions for prosperity, are not sufficient ones. more is needed – and that ’ s why you are here. your topic is “ reform ” in the broad. it ’ s a term that will be used frequently over the next few hours. what does it mean? often it is presented through the lens of allocative efficiency, otherwise known as productivity. and this is very important. ideally, production and demand each face and respond to, without distortion or impediment, underlying relative costs. those relative costs are given by the state of human and physical capital, technology, natural resource endowments and so on. generally, economists think optimal allocative efficiency is achieved by removing barriers to competition in markets – be they tariffs, subsidies, protectionist devices, unnecessary regulation – and allowing relative prices to allocate productive resources. for most products, competitive markets will deliver the greatest choice at the lowest price to informed consumers. granted, there are various exceptions to the generalisation above. where markets are “ natural monopolies ” or externalities exist, for example, regulation is called for. good outcomes won ’ t occur if consumers are not well informed. and so on. nonetheless, i would venture that the biggest gains to prosperity over the past 25 years have come from more competition. ( aside, that is, from gains from the terms of trade, about which we can do nothing and which usually don ’ t keep coming ). competition lowers prices and costs. it promotes the drive to do better, which spurs innovation. minimising distortions due to the tax system also has a role in enhancing allocative efficiency. these things remain important. you should talk about them today

to say with any certainty how the results will turn out. that ’ s why i find it downright illconsidered for third parties to suggest that they know the outcome. bearing this in mind, i trust you will appreciate that the bundesbank will refrain from making any further public statements on the comprehensive assessment as from mid - september. if the aqr or the stress test reveal any capital shortfalls, it will be up to the banks to cover them as quickly as they can, first and foremost by approaching their stakeholders for additional funding. no later than two weeks after publication of the results, institutions will be required to submit capital plans in which they explain in detail how they intend to cover any capital shortfall. however, let us not forget one thing. the comprehensive assessment is based on balance sheet data as at 31 december 2013. when considering the published results, it is therefore important to pay particular attention to the column listing the capital measures taken in 2014. we expressly welcome the fact that several banks have strengthened their capital base in recent months. this helps make the banking system more stable. if there are not enough private funds to fill any capital shortfalls identified, the state in question will be obliged to provide a “ backstop ”. as a last resort, the government is to recapitalise banks, issue guarantees or take on risks. however, this government support is subject to strict conditions. the bank must be solvent, and the support must not offset any accrued losses. moreover, government assistance may be granted only if it serves to avert disruption to the real economy or dangers to financial stability. the comprehensive assessment is a major organisational undertaking for all involved, and one which must, furthermore, be implemented under massive time pressure. at its peak, more than 1, 700 auditors and 230 bundesbank and bafin supervisors were involved in germany alone. moreover, my experience in the bundesbank is that, ultimately, far more colleagues are, of course, involved in the comprehensive assessment than just those officially assigned to the project. some are helping out temporarily or indirectly, while others have had to take on tasks originally performed by staff now directly involved with the comprehensive assessment. for banks, too, taking part in the assessment involves a lot of work. and yet, the comprehensive assessment is decisive if the single supervisory mechanism is to get off to a good start. bis central bankers ’ speeches 3. the world post 4 november under the single supervisory mechanism,