perhaps the most striking case, index - linked government securities have recently traded at real yields of less than half of 1 per cent for a 50 - year security. pension fund buying is prominent among the explanations on offer for this phenomenon. in many countries, central bank accounting is regarded as unique and is often subject to particular legislative provisions or tailor - made approaches. in australia's case, the reserve bank act 1959 is not prescriptive about accounting, but is quite particular about how the earnings of the bank are to be distributed to its owner – the commonwealth. valuation gains on assets – which can on occasion be substantial – contribute to profits, but are only available to the commonwealth as a dividend when realised. unrealised gains are retained in reserves against the possibility of future valuation losses. this is a very sensible arrangement because it prevents a situation where the central bank might come under pressure to distribute unrealised gains, eroding its capacity to cope with inevitable subsequent unrealised losses ( and, potentially, requiring recapitalisation at government expense ). it has been a problem for some central banks, but never in australia. graph 1 the accounting difference between the discounted value of a fund's future obligations and the value of its assets is these days ( quite properly ) recorded on the sponsoring company's balance sheet. a market bond rate is used to discount liabilities, as opposed to the older convention of using an assumed fund earning rate. unless the fund's assets are also placed in bonds, movements in bond rates will affect the solvency position from year to year, which in turn will affect corporate results. at the same time, stricter pension rules now require any measured funding gap between assets and liabilities to be made good more quickly than used to be the case. perhaps it is not surprising that uk pension trustees have changed asset allocations in the direction of holding more indexed bonds. this lessens the likelihood of nasty solvency surprises in any one year, though the associated downward pressure on bond yields has itself weakened the average solvency position, as measured. one can, of course, see why accounting rules stipulate that valuations of assets and liabilities should, for most purposes, use market prices and interest rates. equally, pension rules requiring plan providers to fund adequately their obligations protect the plan beneficiaries against the risk of the company failing and leaving insufficient funds. but if the behavioural response to all this is a rush into assets yielding a

2 %. it is important since capital growth is a key condition for increasing lending to the economy. the trend towards deposit outflow and dollarisation has been reversed ( currently, we can see their inflow ). mortgage lending was supported by measures taken by the government. currently, we can see this market recovering. according to our estimates, this trend will persist and residential construction will support the economy. it is the engine for many other sectors. our banking system is generally stable and banks – also supported by the government – meet the emerging challenges. to allow banks to adjust to the new environment and support the banking system in the most challenging period, we temporary eased the regulation. our task was far from allowing banks to disguise their problems, we rather aim at mitigating the impact of external factors and enabling banks to adjust to the new environment. currently, we are gradually abandoning the anti - recessionary regulation regime. following the discussion with the banking community, we decided to gradually reverse these measures. undoubtedly, decisions on additional capitalisation of the banking system played a positive role. i would like to thank the state duma for this decision. the government and the bank of russia are unanimous that funds allocated for additional capitalisation of banks should be spent on expanding lending to real sectors of the economy rather than patching up the loopholes in banks ’ capital ( they are not aimed at supporting owners ). to our regret, interest rates on bank loans have grown and accessibility of loans for the economy slumped. however, we can see that in recent months banks have followed the reduction of the key rate and above all the mitigation of inflation risks and gradually cut their loan rates. furthermore, difficulties in the economy and finance are not a reason for curtailing the policy of banking sector resolution. besides, we consider it necessary to enhance banking supervision. in 2014, banking licences were revoked from 86 credit institutions and earlier in 2015 from another 30, mostly due to the violation of banking laws, suspicious transactions, accumulated financial problems, and non - disclosure of real financial standing through misreporting. the supervisory objective for the near future is to identify banks ’ problems as soon as possible. this will allow us to protect the stability of both the financial system and banks ’ creditors. as for suspicious transactions, the number of banks servicing the shadow economy is constantly declining : according to our estimates, currently there are about 20 of them, and when we started their number approximated 150. the volume of overseas money diversion