would also serve as a possible source of contagion to the rest of the banking system. thus to reduce the likelihood of systemic risk, a bank will be able to hold some share of its liquid assets in the form of self - securitised mortgages. there is a trade - off here between systemic risk and reduced “ market ” liquidity of the bank ’ s asset holdings, but the bank will have access to liquidity from the rba with these assets. in terms of the range of assets eligible for the clf, the rba reserves the right to broaden that range at any time, but will give 12 months ’ notice of any decision to narrow the range. the latter condition will give banks adequate time to adjust their liquids holdings in response to any change. margins at the same time as the rba released the details of its clf, we also issued a revised schedule of margins for the securities that are eligible in our domestic market operations. this revised schedule of margins will take effect on 1 february next year. the reserve bank applies margins to the collateral held under repo in its domestic market operations in order to protect the bank against all but the most extreme movements in market prices, should its counterparty in the repo be unable to repay the repo. the margins are set to ensure that the reserve bank ’ s contingent risk is the same across all eligible securities. this implies that margins need to be higher on those securities with longer duration, greater illiquidity and greater credit risk. it was appropriate to revisit the reserve bank ’ s schedule of margins in light of the experience of recent years which has provided some indication of how the various asset classes perform in stressed situations. moreover, the margins are important in determining the amount of liquid assets a bank will need to obtain a given level of access to the clf. in conducting the review, we examined the average daily yield movements across the range of eligible securities, as well as the largest daily yield movements. we also compared the margins set by the rba with those in other jurisdictions. as a result of this review, we have made a number of changes. the principal change is that the margins on unsecured bank paper have been increased, with the margin increasing with time to maturity and the lower the credit rating. the rba has also adjusted the eligibility criteria for unsecured bank paper. all senior debt securities with less than 12 months to maturity issued by adis with a public credit

mr. macfarlane draws some conclusions about the direction in which monetary policy regimes are likely to evolve talk given by the governor of the reserve bank of australia, mr. i. j. macfarlane, to the 26th conference of economists in hobart on 29 / 9 / 97. introduction it is a pleasure to be speaking at this year ’ s conference of economists on a subject which has been central to my own career. i thought of calling the speech “ monetary regimes i have known ”, but that would have given too historical an emphasis. while history is extremely important, and provides a useful antidote to excessively abstract thinking, more is needed to satisfy the conference theme of “ policy challenges of the new century ”. i have therefore attempted to respond in a forward - looking way, by drawing some conclusions about the direction in which monetary policy regimes are likely to evolve. historical overview in broad outline, australia ’ s post - war monetary policy experience has much in common with that of other countries in the developed world. certainly the starting point - - a fixed exchange rate under the bretton woods system - - was the same, and several of the subsequent phases have been common to a significant number of countries. we can usefully divide the post - war monetary policy experience in australia into four main parts : the fixed exchange rate period, which lasted until the early 1970s ; a period of monetary targeting between 1976 and 1985 ; a transitional period which followed the demise of monetary targeting and lasted until the early 1990s ; and the inflation - targeting regime, in place since around 1993. while every country has its own particular story to tell, something similar to this four - part schema, with suitable adjustments as to timing, could probably be applied to quite a wide range of other countries over the same period. in making this classification of policy regimes, it is wise to avoid being overly precise about dates. sometimes regime shifts are quite dramatic and can be precisely dated - - for example, the ending of us dollar convertibility into gold, and the united kingdom ’ s exit from the european exchange rate mechanism - - but this is not invariably the case. in australia, the movement between regimes has tended to be evolutionary, and it is not always possible or helpful to date them precisely. how did these four regimes perform, and what were the critical factors that led to the move from each regime to its successor? to answer these questions we need to have in mind some criteria against which the performance of a monetary policy regime can be assessed