increase in banks'holdings of ags and semis would present a problem for liquidity in these markets. graph 6 another issue we considered in 2015 was the ‘ scarcity premium ’ that was present for ags. australia's relatively strong economic performance and aaa credit rating have been very appealing for investors globally. the scarcity premium was prominent in the years leading up to 2015, when the yield on ags was well below the expected cash rate over the period to maturity ( graph 7 ). since then, however, the scarcity premium has gradually dissipated. this has occurred alongside an increase in the stock of ags. it is also consistent with these securities being less tightly held. the combination of these changes suggests that the banks can now hold a higher share of the ags on issue without impairing the functioning of the market. graph 7 this brings us to the first of two changes that we have made to the settings of the clf. we have assessed that banks can increase their holdings of hqla securities from 25 to 30 per cent of the outstanding stock. this will result in the clf being smaller than it otherwise would have been. to minimise the effect of this change on the market, the increase will occur at the gradual pace of 1 percentage point each year, beginning with an increase to 26 per cent in 2020. setting the clf fee the second change we are implementing relates to the clf fee. the clf fee should be set at a level at which banks will face similar financial incentives to meet their lcr through the clf or by holding hqla ( if there were enough available ). however, determining this level of the fee is easier to do in theory than in practice. the starting point for determining the fee is to make use of the spread between the yields on hqla securities and the collateral that the banks hold for the clf. this collateral is all eligible for the rba's market operations, and is mainly the banks'self - securitised residential mortgage backed securities. we have estimated that this spread was around 90 basis points earlier this year. but the higher yield on clf collateral reflects compensation for a variety of risks. in particular, a sizeable share of the spread owes to the higher credit risk on these securities. however, the clf fee should only reflect the liquidity risk component of the spread, and that is very difficult to identify separately. when the reserve bank set the clf fee earlier this decade

, i was surprised and disappointed to learn what the national accounts had to say about our growth performance in the second half of 2000. the grounds for optimism about our growth prospects, which were shared by most private sector forecasters, have been spelled out on a number of occasions, but let me recap briefly : • the australian economy had strong momentum — it had been growing at about 4½ per cent for a number of years, yet it had not built up any of the imbalances that are common late in an expansion ; • inflation, although rising slightly, was moderate, as was the growth of wages ; • asset prices, although on a rising trend, were not obviously overheated and the balance sheets of the corporate and financial sectors were in good shape ; • a similar situation applied to physical investment, which meant the risk of excess capacity developing was minimal ; • the current account of the balance of payments was being reduced under the influence of rapid export growth ; • the fiscal impact of the various tax measures associated with the introduction of the gst was expansionary by all the conventional measures ; and • although monetary policy had been tightened, the level of real interest rates was not high by historical standards, credit was easily available, and the exchange rate had fallen to a point where it was very competitive. of course, there were some worrying signs, but they seemed less significant than the factors listed above. households in particular had taken on a lot of debt by their past standards, though not by international standards ; they were also having to cope with higher oil prices. there were a few rumblings from falls in the us share market which had been going on since march 2000 but, other than that, the mood in the united states was still confident. business surveys showed substantial falls in confidence in the second half of 2000, just as they had in 1998, and employment fell for a time, but these things were consistent with a slowdown, not a contraction. there was also the inevitable uncertainty surrounding the gst and the sydney olympics. what happened and why? so the question is : why was there such a sudden reversal in the second half of the year, particularly the december quarter? economies as well balanced as the australian economy was at mid - 2000 do not just run out of steam : there has to be a reason, or perhaps several reasons. i think it is now generally recognised that there was one overwhelming reason for the change in direction. the feature of the national accounts that leaps out is