and they seek to remedy the weaknesses that became apparent during that period. hence, among other things, there is a significant effort through the basel process to increase the amount and quality of capital in the global banking system, and to strengthen liquidity management by banks. although, as i said, we didn ’ t have a banking crisis here during the gfc period, the australian regulators recognise the importance of improving standards, and we are working on implementation of the various international initiatives in all these areas, and others. one particular piece of the picture that has absorbed a lot of our attention at the reserve bank has been the work on financial market infrastructure, particularly in relation to otc for a more detailed treatment of the issues discussed in this speech, readers are referred to the council of financial regulators discussion paper, central clearing of otc derivatives in australia, june 2011 http : / / www. rba. gov. au / publications / consultations / 201106 - otc - derivatives / pdf / 201106 - otc - derivatives. pdf. bis central bankers ’ speeches derivatives clearing. i know this is very relevant to isda members here today, and it ’ s on this topic that i want to focus my main remarks. at the pittsburgh summit in september 2009, g20 leaders agreed, among other things, to a common commitment to central clearing in key derivatives markets. the commitment states that “ all standardised otc derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end2012 at the latest ”. australia was part of that agreement, and the australian regulatory agencies, like those in other g20 jurisdictions, are working through the issues associated with its implementation. in focusing on that today, i want to look at three questions : why is there a general case for promoting central clearing? what are the complexities involved? ; and where does the process stand in australia? first, why central clearing? the general case for promoting central clearing in derivatives markets is based on the aim of reducing systemic risk by managing interconnectedness. in markets without central clearing, counterparty exposures build up bilaterally and, in certain kinds of products, they can accumulate to very large notional amounts over time. in many cases this might not be a problem, but where the interconnections are extensive enough they can be a source of systemic risk. the risks from those exposures might be managed well by individual institutions, but an

positive side, an important element in some y2k programs is the replacement of aging computer systems with modern, state - of - the - art hardware and software. such capital expenditures - which i should note are not included in the $ 50 billion cost estimate will raise the level of productivity in those enterprises, and, in general, the need to address the y2k problem has increased the awareness on the part of senior executives of the complexity and importance of managing corporate information technology resources. the increased replacement demand also has contributed to the spectacular growth recently in this country ’ s computer hardware and software industries - a process that i would expect to continue for a while longer. but, ultimately, we are largely shifting the timing of these investment expenditures : today ’ s added growth is likely “ borrowed ” from spending at some time in the future. and, if analyzing the dynamics of this situation were not already complicated enough, some firms may “ freeze ” their systems in the middle of 1999 - effectively forgoing the installation of new hardware and software systems just before the millennium. this, too, could influence spending on computer equipment - shifting some of it from 1999 into 2000. while year 2000 remediation efforts may give a temporary boost to economic activity in some sectors, the net effect probably is negative. i suspect the majority of y2k expenditures should be viewed as increased outlays for maintenance of existing systems, which are additional costs on businesses. other than the very valuable ability to maintain its operations into the year 2000, few quantifiable benefits accrue to the firm - and overall productivity gains are reduced by the extra hours devoted to reprogramming and testing. conservative estimates suggest that the net effect of y2k remediation efforts might shave a tenth or two a year off the growth of our nation ’ s overall labor productivity, and a more substantial effect is possible if some of the larger estimates of y2k costs are used in these calculations. the effects on real gross domestic product are likely to be somewhat smaller than this but could still total a tenth of a percentage point or so a year over the next two years. the united states is not alone in working to deal with the millennium bug. efforts by our major trading partners also are under way, although in many cases they probably are not yet at so advanced a stage as in this country. in europe, the need to reprogram computer systems to handle the conversion to the euro seems to have taken precedence over y2