guy debelle : bank funding and capital flows speech by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, at the 23rd australasian finance and banking conference, sydney, 15 december 2010. * * * thanks to alex heath, chris stewart and crystal ossolinski for their help in preparing this speech. the financial crisis has led to a significant re - assessment of risk. having been underpriced for a number of years prior to 2007, risk was rapidly and substantially re - priced as the financial crisis unfolded. counterparty risk came to the fore and there has also been a more fundamental re - assessment of the importance of liquidity risk. there is a new - found, or refound, appreciation for the complex ways in which risk can affect the broader financial system. given the pivotal role of banks in the financial system, the evolution of the financial crisis has placed particular focus on them and the way they fund themselves. because one of the main features of banking business is maturity transformation, banks were exposed to the realisation of a liquidity shock. problems associated with liquidity ( or more precisely the lack of it ) proved to be an important channel for shocks in one part of the financial system to be propagated to others. the re - assessment and the re - pricing of these risks have caused changes in the structure of funding of australian banks. today, i will discuss these developments on the liability side of banks ’ balance sheets. but at the same time, there have also been changes on the asset side of their balance sheets, with credit growth slowing significantly, particularly lending to large businesses. the combination of these changes, together with the investment - focused growth of the australian economy, has had a marked effect on the composition of capital flows to australia which i will discuss later in my talk. these developments may well persist for quite some time to come. bank funding 1 the re - pricing of risk significantly increased the cost of wholesale funding for the global banking system. at the shorter end of the yield curve, the rise in costs primarily reflected counterparty concerns. this is best exemplified by the spread between a short - term rate in the interbank market and the expected policy rate ( graph 1 ). as has been noted in the past, this spread serves as one of the better summary illustrations of the evolution of the financial crisis. in australia, this spread never rose as much as it did in other countries, reflecting the general absence of counterparty

, as an autonomous apex institution, with the mandate of playing a proactive role of a " think - tank " of the banking system. the nibm is recognized by the university of pune as an approved centre for post - graduate research, and also by the department of scientific and industrial research, ministry of science and technology, government of india. joint indiainternational monetary fund ( imf ) training programme ( itp ) has been established recently at the nibm campus in pune. the reserve bank has sponsored and funded this collaboration. this is the seventh such facility of the imf institute in the world. a former governor of the reserve bank and at present the prime minister, professor manmohan singh, inaugurated the upgradation of the 50 year old bankers ’ training college into a centre for advanced financial learning, when he visited the reserve bank recently. the centre is in the process of taking a final shape with the help of a high powered advisory group. the reserve bank also promotes research by providing financial assistance under a scheme – the reserve bank ’ s endowment scheme – to various institutions for undertaking research and training in areas of interest to the reserve bank. the financial support is generally provided through corpus funds. at present, there are 21 corpus funds and the beneficiaries include several universities. the reserve bank funds several seminars / lectures by experts, including leading academics, most notable of them being a series of three memorial lectures and support to national level academic workshops / conferences. as a continuation of this process, and as a part of its capacity building and knowledge management initiatives, the reserve bank has recently signed a memorandum of understanding with the london school of economics and political science ( lse ), as one of the sponsors, for creating a lse india observatory and ig patel chair. currently, an eminent economist, lord nick stern, holds the chair. the lse india observatory co - ordinates india related research, policy development and teaching at the lse and is expected to emerge as a hub for academic collaboration with academic institutions in india, government agencies and corporate bodies. we, in the reserve bank, believe that this event reinforces our joint commitment to greater collaboration between our two countries, economies, financial sectors, central banks, and academia. i would like to conclude by expressing my gratitude to the university, in particular, vice chancellor professor fagoonie for his kind invitation to me, and honorary professor bheenick for making the conferment ceremony a very