guy debelle : remarks on liquidity address by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, to the australasian finance and banking conference, sydney, 17 december 2013. * * * thank you to fari for again organising a good conference. today i will make a few points about liquidity. i have spoken about this on a number of other occasions, but one year out from the basel iii liquidity regime becoming fully operational, it is timely to do so again. 1 why do we have liquidity regulation? the fundamental answer is that banks engage in maturity transformation. they borrow short and lend long. this is a service which society values. there is a demand for banks to provide liquidity services. depositors place their savings with a bank but want to be able to withdraw some part of their funds at short notice. a corporate treasurer wants to have the company ’ s funds in an account where they can be accessed quickly to meet the needs of the firm. at the same time, we prefer to have our loans for substantially longer periods of time. it would be particularly inefficient and bothersome if we had to renegotiate our home loan on a monthly basis. more importantly, it would be very difficult to make any sort of long - term planning or investment decision if there were no long - term loans available. this desire for liquidity on the one hand and long - term lending on the other is intermediated by the financial sector and the banking sector in particular. but the maturity transformation this entails exposes the banking sector to liquidity risk. if all the depositors wanted their money back in a hurry, the bank would not be able to meet that obligation without either calling in their loans, which may be contractually impossible, or trying to sell them. the latter is often practically impossible to do at short notice, or even if it is possible, may only be able to be carried out by selling the assets ( such as loan portfolios ) at fire - sale prices. neither of those outcomes is socially desirable. fire sales run the risk of generating contagion to other financial institutions as the price of the asset falls, as they may well hold that same asset too, and / or may use it as collateral in transactions themselves. fire sales also limit the ability of the institution making the sale to make good on its obligations. so there are externalities to the asset that is being sold, as

reinvestment act is broad and deep. commenters across the board applauded the significant volume of cra loans and investments that have supported lmi households and communities, as well as the benefits households and communities have realized from the cra ’ s focus on local retail financial services, small business lending, and community development lending, investments, and services. and they asked that the three banking agencies work together toward a joint rulemaking proposal so that cra policies can be clearly and consistently applied across agencies. second, there are some good ideas about how to modernize the procedures for setting the area in which the agencies assess a bank ’ s cra activities while retaining the core focus on place. this is not a simple challenge, and this morning ’ s panel identified some promising solutions to the challenge of modernizing the definition of assessment areas to keep up with changes in banks ’ business models. i appreciated the panelists ’ insights on how to balance the importance of place with various business models, including to reflect the extensive use of digital channels and other changes in the banking industry. the public comments we have read so far suggest 1 / 3 bis central bankers'speeches general agreement that there is a need for an update — but not a complete overhaul — of assessment areas through a balanced package of reforms. we have heard general support for assessment areas that reflect each bank ’ s business model, recognizing that branch - based assessment areas work for many banks but that additional or different assessment areas may be appropriate for others. third, we have received helpful input on tailoring cra regulations to banks of different sizes and business models. many of the comments we reviewed expressed support for retaining different performance tests for different types of banks, including the strategic plan option. we also heard this at the regional roundtables, where banker participants ranged from small community banks to large internet - only banks. it was clear that cra regulations cannot be one - size - fits - all. fourth, we have heard some good suggestions for ensuring that any modernization of assessment areas should keep in focus the goal of encouraging banks to seek out opportunities in underserved areas, including in this morning ’ s panel on assessment areas. the concern about cra hotspots and credit deserts was echoed in the comment letters, and several commenters offered helpful suggestions for addressing this problem going forward. and the need to create incentives for cra capital to reach underserved communities was a theme we heard in our regional roundtables from both bankers and