that lend to banks ) has fallen by us $ 1 trillion or around 70 per cent over the past couple of years. some prime funds have switched to become government - only funds, that is, funds that invest only in us government debt. at the same time, investors have allocated away from prime funds to government - only funds. although prime mmfs have maintained their exposure to australian banks relative to banks globally ( at around 8 per cent of total mmf exposures to banks ), their holdings of australian bank debt have declined from around us $ 100 billion to under us $ 30 billion currently. however, in aggregate, australian banks have continued to raise almost as much short - term funding from us commercial paper markets, despite the decline in mmfs. they have been able to tap other investors, in particular us corporates with large cash holdings, such as those in the technology sector. australia ’ s net foreign liability position having talked about capital flows, i will now turn to the stocks, which are the accumulation of all these flows ( plus valuation effects ). australia ’ s net foreign liability position has been relatively stable as a share of gdp for more than a decade, before increasing a little recently to be around 60 per cent of gdp ( graph 4 ). slightly more than all of australia ’ s net liabilities are in the form of debt as the country has had a small net equity position in recent years. that is, since 2013, the level of australian investment in foreign equity has exceeded the level of foreign investment in 6 / 9 bis central bankers'speeches australian equity. this reflects the sizeable offshore equity investment of the australian superannuation sector as well as foreign exchange valuation effects, with the depreciation of the australian dollar since 2013 increasing the australian dollar value of our foreign equity investments. today the majority of australia ’ s debt liabilities are long - term, which is a significant change from a decade ago. long - term debt liabilities are currently around 50 – 55 per cent of gdp, up from around 30 per cent prior to the financial crisis. the post - crisis shift towards longer - term debt was a result of two factors : banks lengthening the tenor of their debt on issue as well as the shift from bank debt towards government debt, which tends to have a relatively longer tenor. 7 short - term debt liabilities are around their lowest share of gdp in two decades. net income deficit i will finish by looking at the cost of servicing those liabilities. over recent

policy how to deal with market dysfunction in periods when the optimal policy response differs from that required for monetary policy purposes operations were ad hoc or discretionary whether more permanent standing facilities might better shape expectations effectiveness – ‘ got in all the cracks ’ no explicit ‘ insurance premium ’ in facility pricing – risks fuelling moral hazard if expected to prevail in future whether to adopt bagehot pricing / terms : eg buying at below pre - stress prices but above stress prices and / or pricing / haircuts took risk off private sector balance sheets added risk to public sector balance sheets how to judge appropriate risk sharing, and set bounds on public sector exposure ability to ‘ go big and go fast ’ necessary in the face of the covid pandemic the first is that central banks are likely to face increasing calls to provide public liquidity insurance for instances of severe financial market dysfunction in the years ahead, as the reliance on those markets grows, vulnerabilities to liquidity shocks persist, and intermediation capacity remains constrained. clarity will be required as to whether, and if so how, such activities fall within their formal remits. in some cases they may be able to use existing tools designed for monetary policy purposes, as they did in the covid crisis. but in others, those tools may prove poorly suited to the task, and new ways will be needed to achieve those ends, whether through outright purchase and sale operations, repo facilities or other means. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice second, central banks will need to decide which marketable assets should be in scope of any new tools. the most obvious candidate is government bonds, which lay at the epicentre of the dash for cash. for other, riskier, assets to qualify, a case would need to be made both that they are sufficiently core to monetary and financial stability, and that central banks can price and risk manage them effectively. it is notable that many central banks bought a range of assets beyond government bonds during the 2008 - 9 and covid crises, including corporate bonds and commercial paper. third, central banks will need to reflect on whether the use of their balance sheets to address market dysfunction should remain primarily discretionary, or whether at least aspects of that role should be formalised into standing facilities, the terms of which are known in advance. the case in favour of such an approach is that a known