, including the securitisation of commercial property, auto and equipment loans also grew faster than aggregate lending in these market segments. a range of factors on both the demand and supply side underpinned the rapid growth in securitisation. on the supply side, changes in technology and the fall in nominal interest rates were important in improving the competitive position of non - bank originators in the mortgage market, who tapped securitisation markets for funding because they did not have access to cheap deposit funding. graph 1 on the demand side, the dearth of supply of high quality credit instruments in the australian market made asset - backed securities ( abs ), and rmbs in particular, an attractive investment for many domestic investors. this domestic demand was the foundation of the market in the early days. over time, the ability to tap international markets became an increasingly important source of demand for australian rmbs, such that prior to the crisis, offshore issuance accounted for more than half of outstanding australian rmbs ( graph 2 ). graph 2 offshore structured investment vehicles ( sivs ) comprised a sizeable share of the international investor base. as is now widely known, these sivs funded themselves short and invested in long - dated assets like rmbs, a business model that was particularly vulnerable. the impact of the financial crisis the re - appraisal of risk brought on by the financial crisis led to demand from international investors retreating faster than domestic demand ( graph 3 ). the sivs were particularly hard hit by the crisis. their funding was severely curtailed and many of their assets turned out to be poor performing, illiquid or both. many were forced to shut down and liquidate their portfolios, in the process selling their australian rmbs into the secondary market, notwithstanding its good performance. indeed, australian rmbs was often sold first because of its good performance. graph 3 on top of this, investor demand for new issuance declined both internationally and domestically because of the brand damage to rmbs from the us in particular, where poor lending and servicing practices saw a material deterioration in collateral performance. the liquidation by the sivs of their rmbs holdings, combined with the increased aversion to the product from investors because of the brand damage emanating from the us, saw the price in the secondary market decline significantly. our estimate is that, in australia, yields on rmbs in the secondary market widened from around 20 basis points over the bank bill rate pre - crisis to as much

a measure of the work still to be done by the industry and regulators to restore investor confidence and improve liquidity. there is, of course a good story to tell : the arrears rates on australian mortgages have remained at a low level and are well below the arrears rates in many other countries ( graph 8 ). graph 8 the state of the securitisation market in australia is by no means unique, with issuance in other markets also sluggish. credit markets globally still remain cautious, with the sovereign debt concerns in the second quarter tempering investor appetite. for example, issuance in the uk rmbs market was particularly weak in the early part of the year, but has seen a modest pick - up in activity more recently ( graph 9 ). one promising development has been the pick - up in offshore issuance by uk originators, exemplified by the recent lloyds issue in the us. graph 9 a constraint on offshore issuance more specific to the australian market has been the influence of the cross - currency basis swap on the cost of issuing in the international market. as i noted earlier, the international market was an important source of demand for the australian market prior to the crisis. a significant share of the issuance to offshore investors was in foreign currency, but post - crisis there has only been one issue with a foreign - currency tranche. part of the reason for this is that the wide basis swap has added to the hedging costs of offshore issues making them less economic, compared with domestic issues. conclusion in conclusion, i have aimed to provide a recap of the state of play in the australian rmbs market. the market is slowly returning to life and i believe it will again play a useful role in the provision of credit in australia. but i do not see it returning to its pre - crisis share of the market any time soon. i look forward to discussing the policy issues surrounding the market with my fellow panel members.