entities. resultantly, immediately after the lehman failure, we saw international financial authorities placing financial sector reforms as their top priority agenda. over the last few years, we have seen increased realization among financial authorities that diversification may be beneficial for a large bank against idiosyncratic risk, but similar patterns of diversification by many global banks across the world had actually contributed towards building up of systemic risk. further, it has also been recognized that the prevailing regulatory framework and polices are not sufficient to address the “ negative externalities ” that large financial firms create. supervisory authorities have arrived at a consensus that sifi definition : an institution, market or instrument is considered systemically important if its failure or malfunction causes widespread distress, either as a direct impact or as a trigger for broader contagion. the interpretation, however, is nuanced in that some authorities focus on the impact on the financial system, while others consider the ultimate impact on the real economy as key ( financial stability board ( 2009 ) ). negative externalities are associated with institutions as they are perceived not being allowed to fail due to their size, interconnectedness, complexity key criterion to identify sifis. bis central bankers ’ speeches sifis require enhanced supervisory focus on account of their relative size, interconnectedness with market ( s ) and complexity. to reduce the probability of failure of such institution and minimize the risk to financial stability and the real economy, it is imperative to strengthen the regulatory framework and enhance supervisory capacity for dealing with sifis. before expressing my views on the regulatory framework for sifis, i would like to appreciate the commendable work done and progress made by the fsb, bcbs and other multilateral agencies on the financial reforms agenda over the last few years. enhanced international accord on capital and liquidity standards ; i. e. basel iii, has set forth the most critical reforms agenda for improving the solvency and resilience of financial institutions. a number of other policy measures supplement basel iii, which among others, included framework for dealing with global sifis ( g - sifis ). starting from initial “ guidance to assess the systemic importance of financial institutions, markets and instruments : initial considerations ” issued in november, 2009 jointly by the imf, fsb and bis, substantial progress has been made in tackling the sifis challenge. a key development took place in november, 2011, when g - 20 leaders at the cannes summit endorsed the policy

- backed market, particularly in the market for rmbs. the volume of issuance of rmbs in 2013 was the highest since 2007 ( graph 6 ). the majority of issuance continues to be in australian dollars, as has been the case in recent years, and in fact, the total australian dollar issuance in 2013 was only exceeded by the level of australian dollar issuance in the two and a half years immediately preceding the onset of the financial crisis. graph 6 despite the low level of foreign currency issuance in 2013, foreign investor demand for australian rmbs has been quite high, reflecting the lack of supply of rmbs in foreign markets, the global search for yield, and confidence in the high quality of the underlying collateral of australian rmbs. publicly available data indicate that, on average, around 40 per cent of each deal in 2013 was placed with foreign investors, and foreign investor participation at issuance has increased significantly. the gradual improvement in rmbs market conditions since mid 2012, particularly the increase in private investor demand, led to the aofm ceasing its rmbs purchases in 2012 and the government announcing the formal end of the aofm ’ s rmbs investment program in april 2013. since the start of 2013, the aofm has sold around $ 1 billion of its rmbs holdings in five transactions, including in february this year the sale of a large part of its holdings of mezzanine tranches following strong investor demand for such exposures. one area where there has been stronger growth has been in the area of subordinated debt, with the banks issuing new basel iii compliant securities to refinance legacy tier 1 and tier 2 securities and to meet strong investor demand. the stock of outstanding government - guaranteed bonds has declined to around $ 23 billion, reflecting maturities and buybacks. the remaining government - guaranteed bonds mature over the next 12 months. bis central bankers ’ speeches the improvement in the rmbs market conditions has also been reflected in a number of other dimensions : • deal sizes have increased, especially for rmbs issued by the major banks, where the average size has increased to $ 2. 5 billion. • issuance has picked up not only for the major banks but also for regional banks and non - banks ( i. e. credit unions and mortgage originators ), with a number of smaller issuers returning to the market after an absence of several years. • rmbs issuance spreads, over the last year or so, have remained at their lowest level