guy debelle : regulatory reforms and their implications for financial markets, funding costs and monetary policy address by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, to the financial services institute of australia, adelaide, 18 september 2012. * * * matt boge provided invaluable help in the preparation of this speech. it is a pleasure to speak here today in my home town. neil grummitt has spoken about some of the details of the regulatory reform process currently underway in australia and globally. my aim is to consider some of the broader implications of the reforms. before doing so, there is an important point to make. the changes we all see the banking and financial system undergoing are not purely the result of regulatory changes. rather there are a number of forces all pushing in the same direction. some of the changes we see are self - imposed, as financial institutions look at the lessons learned over recent years and seek to increase their own resiliency to future developments. some are being imposed by the market in terms of the availability of both the quantity and price of particular channels of financing. others reflect pressure from rating agencies. currently, all of these forces are generally aligned in changing the structure of the financial system in the same direction, although they may vary in terms of degree. in that sense, the impact of regulation may not be as large as it appears on the surface. rather regulation is, in many cases, serving to reinforce the other forces at work. but the regulatory changes will be more binding when these other forces are no longer all pushing in the same direction. the experience over many years is that some of these forces are certain to wane when the credit cycle is in full upswing. in the good times, self - discipline can falter under the weight of competitive pressures, as can market discipline. hopefully in those circumstances, the regulatory framework will continue to impart the necessary restraint. today, i ’ m going to focus on the basel iii reforms. other reforms, such as those around central clearing and otc derivatives are also having a significant impact on the way many of you do business, but i will leave them for another time. the basel iii measures will strengthen the requirements for financial institutions ’ liquidity and capital. it is the impact of some of these reforms on financial markets and on funding costs that i would like to address today. in thinking about this issue, it is important to remember that the intent of the regulatory reforms

stage, i would like to say a few words about reporting and monitoring which are important steps to complete the risk management process. reporting and monitoring is really important to check the system ’ s efficiency. because of this, the risk management function has to have an independent reporting line to provide assurance that the institution is assessing its risks effectively, and is complying with its own risk management standards. with this functionality, reporting is the key component of any risk process, because it is basically the window into the risk management results and the means of communicating risks the institution is exposed to. therefore, data collection and processing need to be highly efficient so that accurate risk results are available in time and within the necessary level of confidentiality. at the central bank of turkey, we established a risk management division about two years ago. the need for such a division came as a result of multiple factors. these factors can be grouped into two as external and internal. the external ones as i have just mentioned in the first part of my speech are rising volatilities in financial markets, rapid developments in information technology, huge increase in trading activity and development of new financial instruments along with the globalization of financial markets. the internal factors are accumulation of net reserves starting from 1997 and the increased responsibility of our bank in terms of its leading role in the turkish financial markets. as our work on risk management has progressed during the establishment process, we have seen that our reserve management needed to be restructured to have an efficient risk management. within this context, although we did not change our primary objectives of having enough liquidity and preserving safety, we decided to consider the return factor also. therefore, we separated our reserves into different tranches serving different purposes, one for operational, one for liquidity and one for investment as in the case of most central banks changing their approach to reserve management. within this framework, we developed a performance benchmark for our reserves to evaluate our performance on a risk - adjusted basis. the benchmark reflecting the neutral position has been constructed in line with the objectives, the asset - liability structure and the liquidity needs of the bank for a one - year period. and it is going to be reconsidered periodically. the risk management division in the central bank of turkey is in the process of establishing a system to carry out risk analysis and to feed the results to the appropriate units. for the last year or so, duration and value at risk ( var ) figures reflecting interest rate and currency risks of the fx