. the intention is not to subsidise the price of borrowing but, by promoting confidence of repayment, to allow the market to find an appropriate price, which of late it has had trouble doing. the australian response has taken careful note of the elements of this plan which are pertinent to our situation. the rba ’ s liquidity facilities had already been further expanded, to allow our counterparties to bring to us internally securitised mortgages as collateral, to get funding for out to a year. this is available at market prices every day. the additional eligible collateral available to the australian system as a result of the most recent changes can support over $ 50 billion of additional liquidity ( after allowing for haircuts ), if needed. the australian government has announced a general guarantee of deposits, as a precaution to allay any public anxiety over security of their savings. it has also decided to offer to guarantee wholesale debt obligations of australian authorised deposit - takers and authorised australian subsidiaries of foreign banks, on commercial terms. this will ensure that australian institutions, some of which are among the highest rated of the world ’ s banks, are able to retain adequate access to term funding in an environment where banks of other countries are able, in effect, to use the rating of their governments when borrowing. steps in these directions, in the context of what other countries were doing, were sensible and the reserve bank supported them. as is also the case in other countries, the design features of the various guarantees will be important. little detail is available from other countries yet. meanwhile, the reserve bank is working with our colleagues in the treasury on the details of the australian arrangements, including on how to maintain continued healthy functioning of australia ’ s short - term money markets. the element of the uk plan australia has not sought to emulate is public underwriting of capital injections. the australian banks have strong capital positions and profits, so they should be able to approach the market on normal commercial terms if they desire additional capital. where to from here? at moments like this, it is hazardous to make predictions. however, it seems to me that the key elements of dealing with the root issues in the crisis are starting to come into place. policy - makers in the major countries do “ get it ”. the plans are not precisely uniform across countries – that is never achievable anyway – but we can, i think, see the shape of a broad common outline.

massive increase in the prominence of asia in the global economy over the past 25 years provided both countries with opportunities. we are both able to take those opportunities because of the open approach we have taken to trade generally. 2 both economies have a high export rate of commodities – relatively more minerals for australia and more agricultural products for new zealand. not surprisingly therefore, both countries have had very significant changes in our terms of trade over the past several years. new zealand is a more open economy than australia, so a rise in the terms of trade of any given percentage has a larger effect on incomes there. but the sheer magnitude of the terms of trade gain for australia means that the gain in real domestic income over the past five years was roughly double the size of the impact in new zealand. in both cases, the terms of trade look like they are now starting to moderate. the two countries share structural policy features : • floating currencies and central banks with a medium - term, flexible inflation - targeting approach to monetary policy. new zealand was, along with canada, a pioneer of inflation targeting ; and • a history of governments, of varying political persuasions, which have maintained a general commitment to market - opening, liberalising policies over the past generation, including financial liberalisation. the two countries also share the same major banking groups, with the large four australian banks having new zealand subsidiaries and branches. the operations of these entities account for 90 per cent of the market for bank deposits and loans in new zealand. for that reason, australia and new zealand have a common interest in sound functioning of the international financial system being restored. our financial systems, like those of most countries these days, are connected to global markets and our large financial institutions are active in international markets. so there are impacts on our systems of the extreme dislocation in international markets, even though the australian banks have strong balance sheets with good asset quality. moreover, these same disturbances are in the process of slowing down major economies and hence global growth, which obviously will have some impact on our own economies. it is time therefore that i turned to say something about those issues. recent events the genesis of the problems – the search for yield in a lengthy period of low global interest rates, the associated disregard for growing risk, structural flaws in the “ originate and distribute ” model of financing, the deterioration in lending standards – have been discussed at length over the past year. for today, it suffices to say that a lot of new risk was