few years, the composition of these capital flows has changed quite significantly, providing some contrary evidence to the hypothesis that the banks fund the current account. i don ’ t think there was any particular problem with the structure of these capital flows previously, nor do i think there is one now. graph 2 in 2010, the net inflow to the australian banking sector was close to zero ( graph 2 ). indeed, over the last three quarters of 2010, the australian banking sector was a net repayer of its offshore liabilities. that is, maturities exceeded issuance. this did not reflect a lack of appetite for australian bank paper, as the cost of issuance was broadly flat or even slightly indeed, australia has recorded a current account deficit for much of its history. bis central bankers ’ speeches lower over the period. instead, as i discussed in a recent speech, 11 it reflected the fact that the banks had less need for wholesale borrowing given the conjuncture of fast deposit growth and subdued asset growth. the terming out of the banking sector ’ s funding is also evident in the decline in the stock of short - term foreign liabilities but an increase in their longer - term liabilities. graph 3 this picture is reinforced if we include flows into australian non - bank securitised assets ( graph 3 ). after net inflows amounting to around 1 – 2 per cent of gdp through the first half of the 2000s, there have been net outflows over the past three years. this change in net flows reflects the sharp drop - off in global appetite for securitised products as the problems in the us housing market came to the fore. the decline in demand for australian securitised assets in part reflects the fact that a lot of the buyers of the paper pre - june 2007, structured investment vehicles, are no longer around. 12 recent developments suggest appetite for these assets is growing again, both on - and offshore. in 2010, while the banking sector ’ s net offshore borrowing was zero, the current account deficit, while narrower than earlier years, was still 2½ per cent of gdp. an increase in foreign purchases of australian government debt and decreased australian investment abroad offset the decline in net capital inflow to the banking sector. turning to the current account side of the balance of payments, the notable development has been the shift in the trade balance from deficit to surplus as the much - commented - on rise in debelle g ( 2011 ), “ collateral,

reporting obligations could be made. asic would then have to develop the associated derivative transaction rules, which would be subject to a regulatory impact study and further industry consultation. it would also be necessary to license at least one trade repository to operate in this jurisdiction. as a result, it could be well into next year before any mandate is actually in force. the effectiveness of the regime will also require a range of responses from market participants. if the transition to new arrangements, whether or not triggered by the issuance of a mandate, is to occur on an acceptable time - frame, institutions should already be making the operational and organisational changes needed to move towards greater use of centralised infrastructure. based on the council agencies ’ market assessment and ongoing dialogue with stakeholders, i ’ d like to identify five areas in which more work will need to be done. first, international banks and the large domestic banks have already had to begin making the transition, in part in response to regulatory reforms already underway in some jurisdictions. in the case of central clearing, efforts to date also reflect the economic incentive of an emerging price differential between cleared and non - cleared transactions. this work is ongoing. international banks active in the australian market are generally already actively clearing australian dollar - denominated interest rate swaps via offshore entities that participate in lch. clearnet ’ s london - based swapclear service or cme clearing in the united states. in most cases, the large domestic banks have taken the initial step of concluding client - clearing agreements for some of their otc derivatives business. for several of these institutions, the transition to central clearing for this segment of their business is having profound implications for the organisation of their operations. indeed, these institutions have been confronted with a number of legal and operational issues, such as clearing agreements that often contain more restrictive contractual terms than in their existing isda master agreements with bis central bankers ’ speeches bilateral counterparties. they have also had to adjust to new operational dependencies on the clearing participants through which they channel their business. for the council agencies, the experience of these institutions has illuminated a number of issues that may warrant further consideration, and which may shape the design of derivative transaction rules should mandatory clearing be imposed. second, it is evident that in the absence of similar pressures, smaller and more domestically focused institutions are generally at an earlier stage in this process. given the complexity of the required adjustment, these institutions are encouraged to accelerate their transition plans. in the case of central clearing, it