businesses and workers come to expect that prices and wages will continue rising quickly this adds to inflationary pressures, requiring even higher interest rates to bring inflation down. ultimately, we would need to slow the economy down by more, which would result in a larger rise in unemploy ment and higher risk of recession. the costs of job loss are very high to individual workers and lead to persistent earnings losses. this experience is consistent across groups of workers. but job losses tend to be disproportionately borne by some members of the community – the young, those who are less educated, and people on lower incomes and with less wealth ( including renters ). [ 5 ] a weak labour market also hurts those who keep their jobs, whether through a reduction in hours worked or lower wages growth. so the future costs to not taming inflation would be borne by all australians, but disproportionately by lower income households. how resilient have household finances been to high inflation and tighter monetary policy? i have noted on a number of occasions that monetary policy needs to be set for aggregate economic conditions. we only have one instrument – the interest rate – to impact demand and it is blunt. but just as inflation is felt differently by various groups in the community, so too are interest rate moves. we therefore need to pay close attention to conditions facing different parts of the community, including the most vulnerable. that is true when thinking about monetary policy and also in thinking about financial stability. the rba ’ s forthcoming september financial stability review ( fsr ) will provide an overall assessment of the health of household and business finances. while i don ’ t want to steal the fsr ’ s thunder, i do want to conclude today by previewing a few key messages on how household finances are faring. the first thing to say is that i understand that the board ’ s message on interest rates is not what many borrowers want to hear. those with mortgages are feeling the squeeze on their cash flows not just from high inflation, but also from the increase in interest rates that has occurred in response to it. and as labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours. information received through the rba ’ s liaison program indicates that more people than usual are seeking support from community organisations, and often for the first time. in the fsr we tend to focus on households with mortgages, because debt has the potential

1990s. the importance of capital and supervision had been reinforced. but by the mid 1990s, developments in technology and the anticipated growth of capital markets loomed large and shaped the environment for that inquiry. the importance of payments systems was much more on the radar screen. as you know, the wallis recommendations transformed the regulatory architecture. apra ( australian prudential regulation authority ) was created and took charge of bank supervision, a function previously performed by the reserve bank, and a new payments system board was created in the bank with a mandate for efficiency and competition in the payments system as well as controlling risk and contributing to financial stability. asic ( australian securities and investments commission ) was given a stronger consumer protection mandate. bis central bankers ’ speeches that regulatory architecture continues today. there is no serious discussion about major change to it. indeed, as has been noted before, the regulatory set - up and the australian financial system more generally came through the most severe international financial crisis since the great depression very well. not unscathed, not without some missteps or liquidity pressures and not without some credit losses. and not without some important supportive policy actions. but overall, we can certainly hold our heads up when the crisis narrative is told. at the same time, there are critical learnings for australia from the experiences of those who had a worse time of it than us through the past seven years. we survived the crisis pretty well, but how do we avoid that leading to complacency? what do we have to do to protect against a future crisis? how should we respond to the wave of changes to global regulatory standards? meanwhile, the technological frontier continues to move ahead quickly, even if in ways that wallis could not foresee. and australia ’ s privately funded retirement income system – growing at the time of wallis but by now amounting to about 100 per cent of gdp – could not be omitted from any comprehensive review of the system. this, then, was the backdrop when the murray committee set to work. the inquiry has eschewed wholesale changes in favour of more incremental ones. i do not intend to offer a point by point response to all the recommendations. let me touch on just a few themes. the first is enhancing the banking system ’ s resilience. there are a few issues here, the most contentious of which is whether banks ’ capital ratios, which have already risen since the crisis, should be a little higher still. the inquiry concluded that they should. there