accessing capital markets. if anything, net bond issuance by australian banks has been strong over recent months, and to the extent that banks are able to take advantage of this availability to extend the term of their wholesale liabilities, that will further improve their resilience to any funding disturbances that may eventuate. wholesale funding is a little more expensive than it was, though marginal funding costs are still no higher than the average cost of the funding being replaced. on the topic of loan quality, the strengthening of lending standards for housing that has resulted from the actions of both apra and asic was timely. so often over the years, tighter standards tended to come too late and reinforced a downturn after it had begun. these measures have occurred ahead, so far as one can tell, of the point in the cycle when measures of asset quality start to deteriorate. some moderation in house prices in some of the locations where they had been rising most rapidly, while not the direct objective of the supervisory measures, is also, in my judgement, helpful. in the business space, the banking system has fairly modest direct exposure to the falls in oil and other commodity prices, with lending to businesses involved in mining and energy accounting for only around 2 per cent of banks'total lending. more generally, competition to lend to business has increased over the past couple of years and business credit growth has picked up appreciably. overall, this is to be expected and is a welcome development at a time when a missing element of the economic growth story is capital spending outside the mining sector, which appears to remain very weak. one notable trend is the aggressive expansion of some of the foreign banks active in the australian market. here there is a note of caution. if these are taking opportunities left on the table where local players ( or earlier foreign players ) were simply too conservative, all well and good. but one is duty - bound to observe that there is a history of foreign players expanding aggressively in the upswing only to have to retreat quickly when more difficult times come. it is worth remembering that cycle. conclusion it seems to be part of the economic zeitgeist that people are continually looking for the ‘ downside ’ risks. it hasn't always been so - i recall lengthy periods when the mindset was always to see inflation pressures around every corner. that people seem to find it easier to bis central bankers ’ speeches imagine the downside today is a mark of the length of the shadow

are very well aware that price pressures are likely to remain subdued for a prolonged period of time but we expect inflation rates to converge again towards 2 per cent as the cyclical upswing of the economy takes hold. we are at the same time very conscious that, if some of the downside risks do materialise, then – because price pressures are already weak today – we would act decisively again. this view is very strongly shared by the governing council members. what are the scenarios that could lead you to act? there are a number of downside risks that we have identified. they relate to the state of the economy and downside risks to growth, a tightening of global financial conditions with undue spill - overs to the euro area, energy prices, and – last but not least – a fatigue in structural reforms in europe. this would mean that investments do not pick up and that business confidence doesn ’ t improve further. for me that ’ s the most bis central bankers ’ speeches important aspect of all – that structural reforms are being implemented so as to improve growth potential, employment opportunities and overall confidence. however, for this last downside risk, monetary policy has clearly its limits in what it can do. another risk would be that, as a result of the comprehensive assessment, there could be some dampening effect in the short term. that risk is still fairly limited and temporary – and should be compensated for by the expansionary effects over the medium term, which will positively affect confidence in the nearer term. we will be monitoring this risk from a monetary perspective. however, this potential procyclical effect of an aqr should not lead to softening the rules of the aqr. the instruments you use to handle each scenario may depend of the nature of the shock. each instrument has a different impact and any of the measures taken would depend on our analysis of the monetary and economic developments. could you just say a little bit more about the possible impact of the aqr? a strong comprehensive assessment makes central bank action more effective. monetary policy does not work as well if banks ’ capital basis is thin and insufficient to support lending. in the us, you can intervene directly in the markets to transmit monetary policy stimulus, because the markets play a bigger role in financing the economy. here, the pass - through of your monetary policy is primarily via the banks and it takes time. the comprehensive assessment should shorten the time it takes for monetary policy to impact the real economy. indeed