two coins out of each spanish dollar, thus rendering them at once more useful in new south wales and much less useful elsewhere. but macquarie ’ s initiatives in granting a charter to the bank of new south wales in 1817, and those of governor darling in rescuing it from disaster in 1826, were perhaps more important milestones in the early financial development in this country. according to trevor sykes ’ account, 5 both of these actions were contrary to the policy of the british government. these appear to have been occasions when the lags in implementation of official policy – measured by the time taken for a request for instructions to reach london by sailing ship, be considered and then answered by return ship, too late to influence the decision – helped to produce a superior outcome! around the world, governments groped towards a sustainable solution for combining the benefits of financial intermediation with stability. progress was not necessarily always steadily in the right direction, 6 but one of the key developments was the gradual evolution of the institution we would today see sykes, t. ( 2003 ), ‘ tulips from amsterdam ’, in t. richards and t. robinson ( eds ), asset prices and monetary policy, proceedings of a conference, reserve bank of australia, sydney, pp. 194 – 202. see chapter 1 of sykes, t. ( 1988 ), two centuries of panic, allen & unwin, sydney. rondo cameron, for example, in claiming that the british financial system contributed to the industrial revolution between th th the mid - 18 and mid - 19 centuries, argues that this contribution was in spite of, rather than as a result of, policy actions of recognise as the central bank. in a number of countries, these institutions had begun life as a means to finance military expeditions by governments of not altogether unquestioned creditworthiness, 7 but they gradually became central players in the efforts to foster stability in normal times, and to restore it after something went wrong. bagehot ’ s classic, lombard street, 8 remains one of the best accounts of this in the case of the bank of england. the notion of the lender of last resort, and the idea that the central bank should look to the interests of the system rather than any commercial interest of its own, were slowly developing. it was, of course, to be some time before the central bank had fully evolved into the current form, even in the most advanced economies. in our own case, the central bank did not really have a fully

system stability. 9 this is a natural response to the circumstances, but it is really a refocusing on one of the key original purposes of the central bank. all of that history is a backdrop to the financial trends of the past decade, to which i now turn. the british governments of the day. he writes : ‘ at almost every point at which banking and monetary policy might have been used constructively to promote economic growth, the authorities either made the wrong decision or took no action at all. ’ see cameron, r. ( 1967 ), ( ed. ) banking in the early stages of industrialization : a study in comparative economic history, oxford university press, new york, p. 58. for example, the bank of england was granted its charter – establishing it as britain ’ s first limited liability banking entity – in 1694 after raising £1. 2 million for the government to fund expenditure in the war with france. bagehot, w. ( 1873 ), lombard street : a description of the money market, henry s. king and co., london. it is not mere coincidence, by the way, that this came at the same time as the macroeconomic instability concerns of the 1960s, 1970s and 1980s receded. better macroeconomic stability has coincided with, and in all probability encouraged, a dramatic increase in the size and complexity of financial activity. financial and economic trends in australia in the past decade the most prominent financial development of the past decade has, of course, been the change in the structure of the balance sheets of households. much has been said about this and so any description here can be brief. the essence of the story is that in the early 1990s, two decades of chronically high inflation in australia ended. interest rates declined as a result. in fact, they returned to levels last seen in the low - inflation period in the 1960s. but in the intervening period, of course, the australian financial system had changed out of all recognition, a result of liberalisation, competition and innovation. no longer was the potential borrower for housing on bended knee to a stern - faced bank manager, the way they had been in earlier periods of low rates. now, lenders were under more competitive pressure to grow their balance sheets. having pursued the corporate borrowers in the 1980s, with rather mixed success, they were now looking to households as a source of growth. we can all recall the advertisement for one major bank in which the formerly stern manager pract