attributed to sir francis baring, who in 1797 referred to the bank of england as “ the dernier resort ”, able to provide funds to an entity when all other sources had been closed off. 6 early writings on i should be clear here that i am not talking about the narrow role where central banks routinely provide funds to an institution that has had some operational snag and found itself short of funds at the end of the day. such standing facilities operate routinely in most countries. we are really interested here in the much more taxing situation where the standing facility is not adequate. this is where the lender of last resort really has an important decision to make, about whether to lend and, if so, on what terms. see humphrey and keleher ( 1984 ), p. 79. the idea came from henry thornton ( 1802 ) and walter bagehot ( 1873 ). thornton, writing in the late 18th and early 19th centuries, saw the old lady of threadneedle street as playing a stabilising role in times of crisis, to prevent a rapid reduction in credit caused by a shrinkage of the deposit base of the banking system. bagehot ’ s classic lombard street appeared in 1873 with what has ever since been seen as the consummate statement of the responsibility of the lender of last resort. for bagehot, it was clear that the bank of england should lend substantial liquid resources on a secured basis to a financial institution that had reasonable asset quality ( i. e. was solvent ) but which faced short term funding difficulties. bagehot ’ s dictum was “ lend freely against good collateral at a high rate of interest ”. it is frequently quoted still, and has been referenced more often over the past year than for a long time. 7 the question is how to put it into practice. even leaving aside the obvious potential difficulties in assessing solvency in real time, the bagehot formula leaves open two important questions : • what is “ good ” collateral? and • what is an appropriate rate of interest? the collateral involved is not necessarily going to be the standard sort of liquid assets. by definition, much of that collateral may already have been used before the bank reached the point of needing a loan of last resort. so the assets in question are likely to be some part of the bank ’ s loan book, or some physical asset of the bank. presumably it is “ good ” if it is priced at a value that could be realised

since then, housing prices in wa have declined while those in some other places have risen, so this gap may have diminished. nonetheless, my guess is that, among the australian states, the citizens of western australia bis central bankers ’ speeches are on average, probably still among the richest. even if the others gradually close the gap over time, as they well might, you are better off for having had the boom. wa has unique endowments of resources. mining has always been a cyclical business, which has long been understood. on this occasion, given the size of the boom, you've done a pretty good job of managing it. as a result, there will be permanently more income and wealth than there was before. conclusion i expect that, in a few years'time, the reserve bank board will once again meet in perth. i imagine that, by then, the current contraction in capital spending will probably have reached an end. new opportunities for growth will have emerged, resulting from things like the growth in the middle class of asia, with all what that means for demand for services as well as for energy and agricultural production. the growth of india is surely also a potential opportunity for wa – facing as you do the indian ocean, and with the advantage of relative lesser distance. a mere eight hour flight time! no doubt western australians will be looking to seize those opportunities. at the same time, this vast part of the australian continent, endowed by nature with so many resources, will still be a major player in key commodities. even if the extraordinary boom in investment was hard to digest, and even if some of the investments don't pay off quite as handsomely as hoped, it still seems that western australians will be richer for the experience. bis central bankers ’ speeches