over the past five years. in 2009, us authorities conducted a public stress - test exercise on the balance sheets of major us banks and insisted that, where the tests revealed weaknesses, banks strengthen capital positions. they could carry out this exercise confident that a backstop capital delivery mechanism, in the form of public injections of capital, was available if private capital was not forthcoming. but it has taken much longer to get to this position in europe. there were stress tests in earlier years but they do not seem to have had the same credibility in the eyes of markets as those undertaken by the fed in 2009. moreover, europe did not have a european public capital delivery device ; it was left to individual national governments to address any need for that. it is apparent that, while american banks carried out balance sheet repair early, and have for some time been in a position to help the us economy in its recovery, european banks have, in aggregate, continued to seek to deleverage by lowering their risk - weighted assets. this cannot have helped the euro area ’ s growth prospects. 1 this is being rectified. later this year the ecb will release the results of its asset quality review, which should be a highly credible exercise. and europe is in the process of building a single supervisory mechanism for large banks. over time, though rather a long time, europe is also committed to creating a single resolution capability and a europe - wide capacity for injecting capital from a single resolution fund if needed. these are all important this is not a new lesson : it was already evident from japan ’ s experience in the 1990s. bis central bankers ’ speeches steps but the respective us and european experiences do, i think, show that prompt efforts to fix serious problems of capital deficiency are ultimately pro - growth. what about in more stable times? can banks with more capital support growth as well as those with less capital? equity is more expensive than debt for banks, and so a financial structure with more equity does mean, other things equal, that the cost of intermediation to the community is higher. even without appealing to propositions of a modigliani - miller kind, which would dispute this assumption, the question is whether this apparently higher cost is a serious impediment to growth. bankers often claim it is. the empirical estimates published by the fsb and bcbs suggest the effect is small, particularly when compared with the costs of large financial crises. 2 stepping back from that debate for

commitment to ongoing reform to make markets work well and to boost productivity. ensuring that regulation is fit for purpose is also important. so too is ensuring that the general business environment promotes innovation. these are all difficult areas to get right, but doing so is key to creating an environment where business is confident enough to take a risk, buy some new capital, hire a new worker or expand their operations. the third factor on my list is the low level of interest rates. the impact of these low rates is evident across a range of indicators and it has further to run. in the housing market, prices and turnover have risen and, as i noted earlier, dwelling investment is increasing. there are also signs of an increased appetite for borrowing, most notably among those purchasing a property to rent out. more generally, households seem prepared to move out a little along the risk spectrum in an effort to increase their expected returns. these developments are creating new business opportunities. so too is the steady growth in the australian population, which remains considerably faster than in almost all other advanced countries ; at the current pace of growth in five years ’ time, the population will be around 10 per cent higher than at present. when businesses are deciding today whether to take advantage of these opportunities, they face a low cost of borrowing and finance is available for sound projects. in time, this should underpin a rise in investment across a range of industries. of course, none of this is locked in. but, together, a lower value of the australian dollar, an improvement in business confidence and low interest rates provide the basis for our outlook of a gradual lift in the non - mining economy over the next couple of years. thank you very much for listening and i look forward to your questions. bis central bankers ’ speeches graph 1 graph 2 bis central bankers ’ speeches graph 3 graph 4 bis central bankers ’ speeches graph 5 graph 6 bis central bankers ’ speeches graph 7 graph 8 bis central bankers ’ speeches