s liquidity needs and the amount of ags and semis that the rba assesses that the banks can hold without impairing the functioning of the market. the size of the clf was set at $ 274 billion in 2015. as an input to this, the rba assessed that the banks could reasonably hold 25 per cent of the stock of ags and semis. this was a sizeable step up from their holdings earlier in the decade ( graph 3 ). graph 3 however, since then, the stock of ags and semis has increased by almost a third. in comparison, the lcr requirements of the banks have been little changed. so the banks can hold more hqla securities compared to their liquidity needs. as a result, the size of the clf has declined to just below $ 250 billion. the increase in ags and semis also means that the shortage of hqla securities is not as large as it once was, although there is still a shortage. reassessing the banks'reasonable holdings of hqla securities to assess the amount of hqla securities that the banks can reasonably hold, the rba takes into account the behaviour of other holders of these securities, along with conditions in bond and repo markets. in 2015, a large share of australian government debt was held by what can be described as ‘ buy and hold ’ investors. that is, these investors were not particularly sensitive to the prices of these securities, and typically they did not contribute to liquidity in the market. many of these investors were non - residents, which were holding nearly 60 per cent of the total stock of hqla securities earlier in the decade ( graph 4 ). graph 4 however, over recent years more hqla securities have become available for use as collateral. in particular, the australian repo market has grown substantially, driven by more hqla securities being sold under repo. of note, non - residents have been lending more of their holdings of ags and semis back into the domestic market ( graph 5 ). graph 5 also, our analysis of transactions in bond and repo markets demonstrates that most hqla securities were being actively traded. turnover ratios for individual ags bond lines were well above zero and much higher than for other australian dollar securities. although semis were traded less frequently than ags, only a small share of the bond lines of semis had low turnover ratios ( graph 6 ). given this, it appears unlikely that a moderate

speech the committed liquidity facility christopher kent [ * ] assistant governor ( financial markets ) address to bloomberg sydney – 23 july 2019 i'd like to thank bloomberg for the opportunity to speak to you about the committed liquidity facility ( clf ). the clf has been in place now for almost five years. as we announced in june, after a careful review, the rba will be adjusting the settings of the clf starting from next year. [ 1 ] today, i thought it would be helpful to discuss the developments that have led us to make these adjustments. we have also published a detailed article on this on the rba's website. [ 2 ] but first, let's review why we needed the clf in the first place. why do we need a clf? the global financial crisis highlighted how important it is for banks to manage their liquidity risk. during the crisis, many banks overseas faced significant liquidity problems having not paid enough attention to their liquidity management in the lead up to the crisis. following this experience, the basel committee on banking supervision proposed tougher liquidity requirements as part of its broader package of reforms, known as the basel iii regulations. these changes have made the banking system more resilient to periods of financial market stress. one of the key planks of the requirement to increase liquidity of the banks was the introduction of the liquidity coverage ratio ( lcr ). the lcr requires banks to have enough high - quality liquid assets ( hqla ) to cover their estimated net cash outflows during a scenario that entails a 30 - day period of stress. the idea is that a bank experiencing stress will have enough liquid assets that they can use to meet their short - term liquidity needs. in this way, each bank holds a sufficient amount of hqla as self - insurance against liquidity risk. like all insurance, this comes at a cost. in this case, the cost to each bank is incurred because the hqla earn a lower yield than alternative, less liquid assets that the bank could otherwise hold, such as mortgages or business loans. for hqla securities to be of sufficient quality and liquidity, they should be both low risk and actively traded in markets. in australia's case, australian government securities ( ags ) and securities issued by the state and territory borrowing authorities ( semis ) meet this test. in contrast, there is relatively little trading in other australian dollar securities, such as