quarter or so, we could expect to see income outflows as these profits are distributed to foreign owners, all other things being equal. this is likely to increase the net income deficit in coming quarters, but not contribute to gross capital inflows to the mining sector, in contrast to previous periods of high profitability, when profits were reinvested to fund increased investment spending. concluding remarks to conclude, the main purpose of my speech today has been to highlight some trends in capital flows that have taken place over the past few years. by and large these trends have, on the surface, continued the patterns of previous years, but disaggregating a little further reveals some noteworthy trends. firstly, sizeable capital inflows have continued to fund mining investment, in particular large lng projects. whereas these ( notional ) flows during the mining investment boom mostly reflected reinvested earnings, much of the more recent flows have been ( actual ) transfers from offshore affiliates. as these lng projects transition into the production and export phase, we would expect to see these inflows moderate. moreover, some of these profits are likely to be paid out to offshore owners as dividends rather than reinvested. secondly, there has been continued appetite from foreign investors for australian government debt, but this needs to be measured carefully given the increased participation of foreign investors in the domestic repo market. the third development has been the continuation of little net capital flows either to or from the banking sector, but, within that, a notable change in the composition of the investor base, particularly for short - term debt. 1 see belkar r, l cockerell and c kent ( 2007 ), ‘ current account deficits : the australian debate ’, rba research discussion paper no 2007 – 02. 2 see debelle g ( 2014 ), ‘ capital flows and the australian dollar ’, address to the financial services institute of australia, 20 may. 3 see rba ( 2011 ), ‘ box b : the mining sector and the external accounts ’, statement on monetary policy, november, pp 42 – 44. 4 i have discussed this previously. see debelle g ( 2013 ), ‘ funding the resources investment boom ’, address to the melbourne institute public economic forum, canberra, 16 april. 5 the fall in commodity prices led to lower mining sector profits ( after dividends ). for a more detailed discussion, see bergmann m ( 2016 ), ‘ the rise in dividend

the level of holdings continuing to rise over the past couple of years. flows into government bonds have nonetheless moderated, and have not kept pace with the increase in net issuance. at face value, the headline statistics show that the foreign ownership share of government bonds has declined by around 20 percentage points since its peak in 2012. however, the extent of the decline is overstated. part of this decline is a reflection of foreigners becoming considerably more active in the management of their government bond holdings, rather than a decreased appetite to hold australian government bonds. in particular, part of the decline in the foreign ownership share reflects an increase in collateralised lending of australian government securities ( ags ) to australian repo dealers. 6 such lending activity – which grew particularly strongly over 2013 – 14 – is captured in the statistics as a sale of ags by a foreigner to their domestic counterparty. this is despite economic ownership remaining with the foreign lender ( who has the obligation to buy back similar securities at some stage in the future ). adjusting the level of foreign ownership to account for this collateralised lending shows that the decline in the foreign ownership share of ags has been around 5 percentage points smaller ( graph 2 ). 4 / 9 bis central bankers'speeches banking sector the aggregate pattern of capital flows to the banking sector has not changed materially since i last spoke on this topic. since 2014 – and indeed over the period since the financial crisis – there have been minimal net capital flows to or from the banking sector. following the shift away from offshore wholesale debt towards domestic deposits that took place in the wake of the global financial crisis, the funding composition of banks has remained relatively stable. but notwithstanding this stability, recently there have been two noteworthy developments relating to short - term debt, both stemming from regulatory reforms. firstly, over the past year or so, australian banks have reduced their short - term debt issuance in preparation for the introduction of the net stable funding ratio ( nsfr ) next year ( graph 3 ). the nsfr provides an incentive for banks to shift to sources of funding considered to be more stable and away from sources such as short - term wholesale liabilities. 5 / 9 bis central bankers'speeches secondly, the composition of australian banks ’ short - term offshore funding has also changed following the implementation of us money market fund ( mmf ) reforms by the securities and exchange commission in october 2016. as a result of these reforms, the value of assets under management of prime mmfs ( those