asset - backed issuance, such as residential mortgage backed securities ( rmbs ), where the bank sells a security backed by a pool of assets to the market. the assets are no longer present on the bank ’ s books after the sale. 5. covered bonds, where the issuance is again backed by a pool of assets. however, in this case, the assets remain on the balance sheet of the issuing bank, and the investor is given an additional claim on the balance sheet of the bank. note that the first three forms of funding are claims on the bank ’ s balance sheet as a whole. in the case of deposits, in many countries, insurance or guarantees provide protection up to some level but any deposit larger than that is a form of unsecured funding. asset - backed issuance is obviously secured issuance, while covered bonds are primarily secured issuance but with an element of unsecured funding in terms of the recourse to the balance sheet as a whole. today i will focus primarily on the last three modes of funding, generally characterised as wholesale funding. first i will summarise developments in bank funding in australia, the us, bis central bankers ’ speeches europe and uk since the financial crisis began over four years ago. central bank actions in each of these areas have had implications for bank funding, so i will then spend a little time discussing this issue. finally i will pose some questions about how wholesale funding might evolve in the future, focussing particularly on the sustainability and desirability of the current investor preference for secured issuance. present graphs 1 to 4 show the patterns of bank wholesale funding over the past five years in the us, uk, europe and australia, using the taxonomy described above. 1 the one additional source of wholesale funding ( not described above ) is government - guaranteed bond issuance for the period from september 2008 until the cessation of the guarantee on new issuance. in every case bar australia, it is noteworthy that the level of wholesale issuance in 2011 is substantially below that in 2007. to a large extent, this reflects the fact that outside australia, credit growth has been very low or even negative for much of this period ( graph 5 below ). the other important factor, mentioned earlier, is the relatively strong growth in deposits in all four regions. this trend is well documented for the us, europe and the uk in a graph from a recent paper published by some of my colleagues on the committee on the global financial system.

is released on 21 march. 4 foreign exchange transactions i ’ ll now talk about the bank ’ s transactions in foreign exchange markets. the bank transacts in foreign exchange markets for a number of reasons. the principal one is because we do all the australian government ’ s foreign exchange transactions. for example, when the department of foreign affairs needs to pay its embassy in washington in us dollars, the bank sells the necessary us dollars to the government ( in exchange for australian dollars ). generally, the bank purchases the us dollars in the market prior to settlement, although it does have the option of funding its sale of us dollars out of its foreign currency reserves. on average, the bank does around $ 30 million of these transactions each day. one benefit of this regular interaction with the market is that we are able to get useful intelligence about developments in the market. this flow of information helps us to form a view about market conditions in real time and can prove invaluable in times of market stress. i use this information to provide some background colour to my monthly briefings of the reserve bank board on financial market developments. the 2012 analysis of funding costs can be found in deans c and c stewart ( 2012 ), “ banks ’ funding costs and lending rates ”, rba bulletin, march, pp 37 – 43. bis central bankers ’ speeches most of the other transactions the bank undertakes in global financial markets result from the fact that the bank holds and manages the country ’ s foreign exchange reserves. currently these amount to $ 36 billion. 45 per cent of these are held in us dollars, 45 per cent in euros, with the remainder split between yen and canadian dollars. the bank has a conservative approach to managing the reserves, with the vast bulk of the portfolio invested in government securities. the day - to - day management of the reserves portfolio is undertaken by rba staff in new york ( for the us and canadian dollar portfolios ) and london ( for the euro portfolio ) as well as in sydney. the transactions that are conducted each day in managing the portfolio again provide us with very useful market intelligence, particularly in times of market stress. why is it that we hold $ 36 billion in foreign currency? why not some other amount? 5 one reason is that some of the reserves are held to fund australia ’ s potential commitments to global financial institutions such as the imf. but the primary motivation is to provide the capacity for the bank to intervene in the foreign exchange market when necessary. over