have talked about central banks acting as market - maker of last resort, stepping in to provide liquidity in a dislocated market ( like foreign exchange intervention ). this is an interesting question to consider. i think it is a mischaracterisation to call this market - making. it is more likely the central bank will be the buyer of last resort. it may well be some time before the central bank can sell on the asset at a reasonable price. this might well be justified to prevent firesale dynamics taking hold, but it should be recognised for what it is, which is not market - making. the potential implications for central bank balance sheets also need to be thought through. one lesson from any number of crises past is that it is almost inevitable the next crises will originate somewhere different. the inevitability of this in part arises because of the reforms introduced to address the sources of the previous crisis. so where might one possible location of the next crisis lie? to me, one possibility is that it will involve central counterparties ( ccps ). they have a high degree of interconnectedness, considerably greater than before, and very much sit at the heart of the financial system today. their resilience is of first order importance, as they potentially constitute single points of failure. much has been done to increase their resilience, recovery planning and resolvability already, including by my colleagues at the rba. the fsb has a work program to address ccp issues, but it remains a work in progress. how much is enough? finally, i will pose a critical, but unresolved, question : what is the right amount of leverage in the system? when is there too much? https : / / www. rba. gov. au / speeches / 2018 / sp - dg - 2018 - 12 - 06. html 10 / 13 12 / 6 / 2018 lessons and questions from the gfc | speeches | rba leverage was at the heart of the gfc. leverage in the banking system and highly leveraged nonbank institutions like bear stearns and lehmans played a fundamental role in significantly amplifying the crisis. excess leverage in housing sectors, such as those in the us, ireland and spain, was incredibly damaging. this has led to the long - lived effects we still see today, both economic and political. but we still don't really have a great handle on what level of leverage is dangerously excessive for governments

from the gfc | speeches | rba the australian banks'similarity is not so obviously beneficial in the current circumstance. their similar behaviour and similar reaction functions to events such as falling house prices run the risk of amplifying the downturn in the housing market. the crisis very much demonstrated the critical importance of keeping the lending flowing. the lesson is that countries that did that fared better than countries that didn't. that lesson is relevant to the situation today in australia, where there is a risk that a reduced appetite to lend will overly curtail borrowing with consequent effects for the australian economy. karma police after the crisis has come the regulatory response, coordinated by the financial stability board ( fsb ). [ 13 ] in the banking space, the regulation has included : 1. the basel capital standards have required the banks to hold more capital thereby reducing leverage. 2. the liquidity coverage ratio ( lcr ) had addressed liquidity / runnable funding. 3. the net stable funding ratio ( nfsr ) has addressed funding mismatch / maturity transformation. 4. the volcker rule ( in the us ), and increased balance sheet costs more generally, have reduced banks'capacity to provide services such as market - making and repo in other jurisdictions. the first of these has clearly reduced the leverage in the core banking system. some argue that the leverage should be reduced further ( see below ), but unambiguously banks hold more capital than they did pre - crisis. the enhanced liquidity regulation in australia has been in place since the beginning of 2015, and its effects have been present even before then as the banks adjusted their funding and assets to meet the new requirements. in other parts of the world, i think the effect of the liquidity regulation has been diluted by the large liquidity provided by the greatly expanded central bank balance sheets. as the fed balance sheet is shrinking, it is likely that the liquidity regulation will start to bite more in the us. indeed it is possible we are starting to see some effects now, not necessarily in aggregate, but in particular parts of the money markets. as important as the liquidity regulation is, in my view, asset quality matters more than funding in the end. [ 14 ] if asset quality remains sound, as a creditor of the bank, i should be confident of being repaid. an example of this is to compare the german domestic banks and the australian banks. the german banks were predominantly deposit