concerns and the associated smoother functioning of the interbank market throughout most of the crisis. as graph 1 shows, this spread has fallen back in australia to be not far above its pre - crisis levels : pre - crisis the 90 - day spread averaged around 10 basis points, now it is around 20 basis points. it is not surprising this spread has narrowed so far. by and large, one would expect that in more stable times, counterparty concerns would be reasonably absent over shorter horizons and so not much of a risk premium should be present in the pricing. but when counterparty concerns are rising, they tend to be rapidly incorporated into this spread. for more detail on bank funding, see the reserve bank of australia submission to the senate economics references committee inquiry into competition within the australian banking sector, 30 november 2010. graph 1 at longer terms, the effect of this repricing of risk is much more stark and, while pricing has eased back from its peaks, it still remains well above its pre - crisis levels ( graph 2 ). the overall cost to a major australian bank of issuing a three - year bond has risen to around 120 basis points over the government bond yield compared with around 50 basis points precrisis. graph 2 shows that similar, but larger, developments have occurred in other banking sectors. graph 2 in addition to this effect on the pricing of wholesale funding, the re - assessment of risk has had a marked impact on the structure of banks ’ funding ( graph 3 ). banks, their regulators and markets have re - assessed the riskiness of different sources of funding, particularly liquidity risk and the related concept of rollover risk. this change in perspective is embodied in the new basel standards for the banking system. graph 3 one notable change is the rise in the share of deposits from less than 40 per cent in 2007 to over 45 per cent currently. the deputy governor ric battellino talked about this at this conference last year. 2 the desire to increase the share of deposits reflects the assumption that deposits represent a more stable source of funding. in order to boost their share of deposit funding, banks in australia have competed aggressively in terms of price. an indication of the degree of competition for deposits is the extent to which there has been an increase in the cost of deposit funding relative to the cash rate since mid 2008 : the average cost of the major banks ’ new deposits is now only slightly below the cash rate, whereas prior to the onset of the financial crisis, deposit rates

clearly in manufacturing where the mass - production of standard items will become dominated by the big asian countries, and we must find other avenues which are opened up by the possession of more specialised skills. this is more complicated than it sounds. some people think that china is only going to dominate low - tech things such as textiles, clothing and footwear, basic utensils, consumer electronics, etc. but they could dominate a lot more than that ; they could dominate anything that can be produced on a large scale, even if it is technologically sophisticated, such as cars and semiconductors. what we will need to be good at will be in producing things that are specialised rather than mass - produced, skill - intensive and which, in many cases, may be difficult to identify other than by trial and error. they will include both manufactured goods and specialised services for export, but will also involve using the best applied science available to increase productivity in our traditional resourcebased industries and in those parts of the economy not involved in international trade such as construction or domestic transport. there are no short cuts here. the thing we know is that profitable opportunities will only be found if we have a culture of inquiry and innovation. this in turn can only happen if we have a vigorous educational and scientific environment where excellence is valued and rewarded. an illustration of this is if we think back to the discussions in 2000 at the height of the technology boom. there was a widely - held view at that time that the countries that would get ahead were those that manufactured it and telecommunications equipment, and that if you did not do so you would fall behind. there was even the suggestion floated in this country that we should entice intel to open a chip factory here. in fact, all the research that has now come to light shows that it is the application of the new technologies which leads to the big increases in productivity, not the manufacture. in fact, manufacturing often takes place in a huge foreign - owned factory, using orthodox mass production techniques, with very little spin - off to the rest of the economy. my third theme is demographic. all around the developed world, populations are aging and the growth of working - age populations is slowing or, in some cases, falling. more retired people are being supported by fewer working people. we should be looking ahead and encouraging higher labour force participation by older workers. the intergenerational report produced by the government will be a very useful document on which to base thinking on policy options.