market economies – for example brazil, russia and turkey. among the various factors contributing to that in recent times have been falling commodity prices, political instability and excessive corporate leverage. equity prices and exchange rates in these economies have fallen quite sharply. taken together these developments have contributed to a pick - up in volatility in global financial markets over the past six months, after a lengthy period when volatility and risk pricing were unusually low. even so, risk pricing in most markets remains well below the crisis - related peaks of a few years ago. implications of the global risk environment for australia at this point it is useful to ask how these international sources of risk might affect the australian financial system. direct exposures of australian banking institutions to the risk factors i have been describing are quite limited ( table 1 ). exposures to the euro area have been scaled back in the wake of the crisis and now represent only around 1 per cent of australian banks ’ consolidated global assets. although exposures to the asian region have been growing quite rapidly over recent years, they are still a relatively small share of consolidated assets – around 5 per cent. many of these exposures are shorter - term and trade - related, factors which should lessen credit and funding risks. that said, operational and legal risks could be relatively high, particularly given the rapid expansion of these activities in recent times. bis central bankers ’ speeches table 1 australian - owned banks ’ international exposures ultimate risk basis, june 2015 value share of international share of global exposures consolidated assets $ billion per cent per cent new zealand asia ( a ) – china united kingdom 176 united states europe – greece other total ( a ) asia includes offshore centres hong kong and singapore. sources : apra ; rba. as a more general observation, australian banks have increased their resilience over recent years in a number of respects, responding both to market expectations and to regulatory and supervisory actions. notably they have raised their capital ratios and shifted their funding structures to make them more resilient to financial market disruptions. of course, none of this guarantees that australian banks will be immune to international shocks in the future. but it suggests that the main effects from the risks i ’ ve been describing are likely to be indirect, working through the impact of factors like commodity prices, trade flows, and confidence, on the broader economy. domestically generated sources of risk that brings me to the third part of our risk assessment, namely domestically generated sources of risk. here our analysis has for

zero ( or even slightly below zero ) in many advanced economies to support recovery and assist in balance sheet repair, and they still remain at those levels. in europe, significant institutional reforms are being made to strengthen the stability of the euro area ; these are aimed at getting banking and crisis - management arrangements across the area to function in a more unified way that makes them more robust to shocks in the future. and globally, there is an extensive program of reform underway, for example in banking and securities regulation, to build resilience in our financial systems. australia has been very much a part of that process. a related development in this period is that there has been a renewed interest in more proactive approaches to the management of systemic risk. partly this reflected the lesson from the gfc itself that financial crises are costly, and hence that there is a strong need for better risk management. in keeping with that, institutional arrangements have been strengthened in some jurisdictions to support more proactive risk management by supervisors, where that was found to be lacking. a related point is that, in a low interest rate environment, supervisors have seen a need to be particularly vigilant against a build - up of risk in interest sensitive sectors. a number of them have been taking measures in recent times to respond to developing risks, often focused on property lending. i will have more to say about that later. to summarise ( and oversimplify ) this picture somewhat, the after - effects of the gfc on the global economy have included : reinhart cm and k rogoff ( 2009 ), this time is different : eight centuries of financial folly, princeton university press, princeton. bis central bankers ’ speeches • an extended period of low interest rates • “ search for yield ” behaviour by investors in some interest - sensitive sectors, and • a strengthened focus on risk management by prudential supervisors. recent developments with all of that as background, i want to turn now to our assessment of the evolving risk environment over the past six months, and here i draw on some key messages from our recent review. it is useful to take that subject in three parts : • the global risk environment ; • possible implications of that environment for australia ; and • domestically generated sources of risk. the global risk environment as i have already mentioned, much of the attention from a financial stability point of view over recent years has been on europe. there has been a particular focus on greece, and on potential spillovers from greece to other parts