financial institutions that are still privately owned have generally increased by more than the broader market. a number of large american and european banks that accepted public - sector capital injections during the crisis have moved to repay them. the challenges that remain ahead for the banking system in major countries nonetheless remain considerable. the outlook for some of the remaining government ownership stakes remains unclear. while losses coming from write - downs of securities slowed some time back, losses are still occurring in lending books as a result of the normal effects of big recessions, not least in the area of commercial property. this will continue for a while. in addition, banks, particularly large internationally active banks with big trading operations, will require additional capital over time under proposed changes to global prudential standards. there is a considerable contrast between that picture and the one for banks in most other countries. it is important to note that the majority of countries have not had a banking crisis as such. everyone was affected by the seizing up of markets in late 2008, but most were not afflicted with the sorts of asset quality and capital issues that so bedevilled large us, uk and continental european banks. this in turn meant that once the panic had subsided, the banks in most countries were able to continue to carry out their functions – albeit under more difficult circumstances and facing much more subdued demand for credit, particularly from corporations. australia is a good example of this, though not the only one. the lowest rate of return on equity earned among the major banks here over the past two years was about 10 per cent in underlying terms ; among smaller banks the lowest was 3 per cent. when markets for securitisation closed the major banks stepped into the gap by increasing their rate of housing lending, albeit at higher prices. these banks were able to support some business customers – again at a price – that in previous cycles they might have chosen to cut. the rate of provisioning for bad loans has stopped rising for several banks, and non - performing loans are likely to peak at a considerably lower share of loans than earlier expected. this general picture, even if not the exact numbers, would, i suspect, be replicated across much of asia. these differences in experience are an important backdrop for the international work on regulatory reforms. there is no question that there must be some significant reform. to use the medical analogy again, the recovering patient is usually advised to consider some dietary and lifestyle changes, and perhaps to submit to some ongoing monitoring, in order to

avoid further emergency procedures. these changes involve : removing the scope for taking on excessive leverage via regulatory arbitrage ; making sure that adequate capital is held against risk that is being incurred ; ensuring better management of funding liquidity ; countering, to the extent possible, the inherent tendencies in both human nature and regulation to form assessments of risk in a pro - cyclical way ; and improving resolution processes to ensure orderly and rapid crisis management and to help manage the issue of “ too - big - to - fail ” institutions. these are all very important goals. the australian authorities support them. but as we have said before, the really serious problems were generated in a relatively small number of very large, internationally active banks. they did not stem from the thousands of other banks around the world which have not needed to be “ bailed out ” and whose capital resources have, in most cases, proved adequate to cover normal losses in a cyclical downswing. hence it is important not to shackle unnecessarily the latter group in our efforts to constrain the relatively small number which caused much of the problem. challenges from sovereign debt turning from banks to markets more generally, a recent development has been the increasing focus on sovereign debt and creditworthiness. the initial manifestation of this was late last year when dubai world requested a six - month standstill agreement on its debt repayments. more recently, the focus has been on greece, after it was revealed that the greek government ’ s current borrowing requirement was much larger than had been previously disclosed. greece is a small country – accounting for only half of one per cent of the world ’ s gdp. the significance of greece is that it is a euro area country, which means two things. first, its adjustment to its predicament cannot involve currency depreciation ( unless it were to leave the single currency ). the only way it can grow out of the problem is by gaining competitiveness against other european economies via domestic deflation, which will be a difficult and lengthy process. a very large fiscal consolidation is an unavoidable part of this path. second, the euro area has an interest in this effort succeeding, which is why there has been intense discussion about whether, and in what form, european assistance might be forthcoming. any assistance would of course have to pass the test of credibility more generally in europe, and would need to be applicable under similar terms to other euro area countries if needed. this is obviously a difficult problem,