had to rise. as i will discuss later, this will mean that the interest paid on some of our liabilities will for a time be higher than the return we receive on our assets, and as a result the bank will be making losses. but the economic stimulus from the bpp contributed to higher revenues for the government, helping to reduce the budget deficit relative to earlier expectations. it also resulted in government debt being issued at a lower fixed cost than otherwise. although the review concluded that the bpp achieved its aims, it did highlight a number of lessons. on the positive side, as i mentioned, the bpp was quite flexible. it was implemented with relatively short purchase horizons so it could be adjusted dependent upon market conditions and the economic outlook. indeed this flexibility, along with the communication of developments in the program ahead of time, allowed for a relatively smooth exit from the program, particularly as compared with the exit from the yield target. on the other hand, just as we concluded in the review of the yield target, if more weight had been given to possible upside scenarios on the economy, the assessment of the relative costs and benefits of the bpp might have been different and led to alternative decisions. the review concluded that it would only be appropriate to consider the use of a bpp in the future in extreme circumstances – that is, when the cash rate target has been lowered as far as possible. this brings me to the bank ’ s balance sheet and its 2021 / 22 financial results. r e s e r v e b a n k o f au s t r a l i a the bank ’ s balance sheet the review of the bpp discusses the losses that the bank is expected to incur over coming years because the return on its assets will be less than the interest paid on its liabilities – primarily balances in exchange settlement accounts. but, in about a month ’ s time, the bank will release its annual accounts in which it will report a large accounting loss and negative equity. what i want to do now is to step through the main features of the bank ’ s balance sheet and the 2021 / 22 outcomes. the bank ’ s balance sheet is relatively simple. on the asset side, the bank essentially holds domestic bonds ( either outright or under repurchase agreements ) and foreign exchange reserves. [ 2 ] prior to 2020, the bank ’ s balance sheet was between $ 150 billion and $ 200 billion. most of the assets were either foreign exchange reserves or domestic securities

completely happy with rmbs and have no interest in covered bonds which pay a lower yield for a similar credit exposure. i would expect that covered bonds are likely to be primarily an offshore funding source for the australian banks with the domestic investor base more comfortable with rmbs. bis central bankers ’ speeches in that regard, it is worth posing the question as to how different the various forms of bank funding actually are. all of the forms of funding are claims on a bank ’ s balance sheet in one form or another. unsecured bank funding ( including deposits ) is a claim on the balance sheet of the bank as a whole. the assets underpinning that claim are the same form as those which back the secured issuance. an rmbs is not an on - balance sheet claim, but is a claim on a set of assets very much representative of a sizeable part of the balance sheet. in australia, at least, the mortgages which are securitised by banks in their rmbs issues have similar characteristics to those mortgages which remain on the banks ’ balance sheets. the same is also true of the forthcoming covered bond issues by the australian banks. so the underlying assets aren ’ t that much different, rather the difference is in the degree of credit enhancement provided by subordination in the case of rmbs or over - collateralisation ( and additional recourse to the balance sheet ) in the case of covered bonds. the strong motivation for the current preference of investors for secured issuance is about repositioning themselves towards the front of the creditor queue. that is the fundamental point of differentiation between the various forms of funding. but ultimately, everyone can ’ t be at the front of the queue. in theory, or in a less risk - averse environment than the current one, pricing should equalise the incentives to issue and purchase the various forms of funding. investors should be compensated for their risk of being further down the creditor queue with a higher risk premium. but in today ’ s environment, there are plenty of examples where market pricing is not always sending the most accurate signal. in due course, investors in bank paper might again come to the realisation that there is not as stark a difference between secured and unsecured issuance, as current pricing would suggest. investors need to heed the seminal words of the saints : “ know your product ” and do the necessary due diligence. so in the end, i think we should return to a world