malcolm edey : the transition to central clearing of otc derivatives in australia speech by mr malcolm edey, assistant governor ( financial system ) of the reserve bank of australia, at the international swaps and derivatives association ’ s ( isda ) 2015 annual australia conference, sydney, 22 october 2015. * * * i thank mark manning for his invaluable assistance in preparing these remarks. good morning and thanks to isda for the opportunity to speak here today. when i last addressed this forum three years ago, it was a time of quite significant stress in world financial markets. a particular focus of concern was the unfolding crisis in greece and the associated risk of spillovers to other parts of europe. a lot has happened since then. as a general observation, financial conditions around the world have been gradually recovering, though not without some periodic bouts of nervousness. the concerns about greece came to a head around the middle of this year, and spillovers from that have turned out so far to be quite limited. more generally, the world economy has been expanding at a reasonable pace over these three years, and the process of balance sheet repair has continued. these are positive developments. nonetheless, in some important respects the situation is still some way from returning to normal. the after - effects of the global financial crisis are still weighing on activity in some of the major economies. and interest rate settings around the world are still at exceptionally low levels to support growth, seven years after the crisis reached its height. all of this underscores the point that financial crises are costly events. they are costly in terms of lost income and output, lost jobs and damage to institutions. and we ’ ve seen again that it takes a lot longer to recover from a financial crisis than it does from other types of economic downturn. these are good reasons for the global efforts that have been made over the past few years to build resilience in our financial systems. a great deal of work is underway on that front, at both national and international levels. in australia, we have had a major inquiry into the financial system which, as one of its priorities, made a number of recommendations to strengthen financial resilience. key recommendations in that area have been endorsed by the government this week. internationally, there has been an extensive program of regulatory reform initiated by the g20 and coordinated through the international standard setting bodies. today i want to focus on just one aspect of that work, namely the move to central clearing of

speech fx markets around the turn of the year christopher kent [ * ] assistant governor ( financial markets ) australian corporate treasury association fx roundtable webinar – 17 february 2021 introduction today i will discuss some recent developments in the foreign exchange market, and provide some views on the role of the reserve bank's various policy measures. i will also briefly discuss a modest change to the way the bank will be using foreign exchange swaps to manage our foreign exchange needs. a novel development in the market for australian dollar swaps typically, australian banks pay a small premium to swap foreign currency into australian dollars. this premium is also referred to as the basis, which is the difference between the implied cost of obtaining australian dollars in the fx swap market and the cost of obtaining australian dollars onshore. most of the time the basis is positive, but over the course of 2020 the basis declined and became negative at shorter tenors, with a very noticeable decline around the turn of the year ( graph 1 ). i thought it was worth explaining what's happened in this market. graph 1 but first, it's helpful to understand why the australian banks have typically paid a premium in this market. they obtain foreign currency by issuing debt offshore – including via bonds denominated in us dollars. they do this to help diversify their funding sources. it allows them access to deep, liquid foreign capital markets. they then swap this foreign currency into australian dollars in order to fund their australian dollar assets, including the loans they make to households and businesses. the demand for australian dollars in the swap market by the australian banks is the flipside to the demand from other entities to swap australian dollars into us dollars, much of which relates to their own hedging needs. this includes foreign entities issuing kangaroo bonds in australian dollars to fund their assets offshore and australian investors who hedge their foreign currency assets. [ 1 ] while the flows are large in both directions, demand and supply are brought in balance in the swap market with those demanding australian dollars typically paying a small premium. however, over the past year there have been some sizeable changes in the market for australian dollar swaps. the reserve bank's policy actions have played a part here by providing plenty of australian dollar liquidity. for example, to date the reserve bank has provided australian banks with $ 86 billion of low - cost funding for terms of 3 years via the term funding facility. at the same time, the banks have seen strong growth in their deposits and slower growth