a big change in attitudes and perceptions about financial risk. although confidence in global markets has partly returned, risk appetite now is clearly not what it was. and certain kinds of financial activity, particularly in wholesale, securities and derivatives markets have settled at much lower levels than they were in the pre - crisis period. all of this raises the question as to what the new normal might look like in our financial systems. has the world changed forever? to what extent can we expect the earlier causal factors driving financial change to reassert themselves? in thinking about this, i find it useful to categorise these causal factors into three groups. i see these as being conceptually distinct even though they are likely to interact in complex ways in practice. in the first group are the long - run forces driven by trends in incomes, technology and demographics. viewed in the abstract, there are a number of reasons to think that financial activity might be able to grow faster than the general economy for sustained periods, and even that this configuration might be some kind of norm. on the demand side it seems plausible that, as people get richer, more of their income can be spent on financial services, including debt servicing, as proportionately less needs to be spent on necessities. associated with this, the relative value of scarce assets that are financed by debt might be expected to rise over time. and the combination of increasing wealth and greater longevity in our societies is likely to generate rising demand for services in the wealth management and retirement income sector. on the supply side, the key point is that finance is an information - intensive industry. its key outputs depend on the capacity to store, analyse and transmit information securely. we ’ re not actually very good at measuring the real value of financial outputs and hence not good either at measuring productivity in the sector. but it would be surprising if the ongoing advances in information technology were not generating significant growth in finance industry productivity relative to that in less information - intensive sectors. this is a process that can continue as long as the technology itself goes on improving. so there are some valid reasons to think that both supply and demand for financial services can grow faster than nominal incomes over time, other things being unchanged. the second set of forces to consider are the one - off factors that made this particular quarter century, in financial terms, unique. one of these i have already alluded to : the financial deregulation that took place around the world mainly in the late 1970s and early 1980s. fundamentally

of banking assets to gdp, australia ’ s ratio is about 2, which is well within the international range and well below those in the euro area, the uk and japan. so to the extent that any generalised financial overhang exists, it is less likely to be a problem here than elsewhere. • that said, attitudes to risk and debt accumulation in the australian household sector have clearly changed. saving rates are up, the appetite for new debt is down, and attitudes to both the level and composition of household saving have become more conservative ( graph 4 ). bis central bankers ’ speeches graph 4 so what of the future? to return to my three sets of causal factors : • there are some reasons to think that longer - run trends in income and demographics can contribute to further growth of the financial sector over time. • however, much of the expansion over the pre - gfc quarter - century was driven by one - off factors, notably the adjustments to deregulation and low inflation. these adjustments have now run their course. • and, while we can ’ t be definitive, it is plausible that the world financial system has overexpanded in relative terms and needs a period of readjustment, though this is less likely to be a major factor in australia than elsewhere. the ongoing development of the financial system in the post - crisis period will depend on the interplay of those three factors. on any reading, it seems clear that this will be an environment where it is harder in general for banks and for the system as a whole to grow. while it is difficult to specify what that might mean in numerical terms, a return to financial sector growth rates consistently higher than the growth of nominal gdp seems unlikely for the foreseeable future. that is my first concluding comment. my other comment concerns the nature of competition. the pre - gfc quarter century was an unusual period, in that competition in financial intermediation came to be focused mainly on the lending side of the balance sheet. that now looks to have been an aberration, and we seem to be entering a period where significant competition on both sides of the balance sheet becomes the norm. it might take some time to get used to this new reality. but in general i see it as a healthy development because it will mean banks being under greater market discipline to manage their risks. and of course, regulators will be doing their part on that front as well. bis central bankers ’ speeches