glenn stevens : financial crisis developments – impact on the australian economy opening statement by mr glenn stevens, governor of the reserve bank of australia, to the house of representatives standing committee on economics, canberra, 20 february 2009. * * * mr chairman, thank you for the opportunity to meet again with the house economics committee. shortly after the committee last met, the global financial system took a serious turn for the worse. on 15 september 2008, the american firm lehman brothers filed for bankruptcy. it was the biggest actual failure of a major american financial institution for many years. while it had been widely known that lehmans was under immense pressure, when it came the event was still a shock. it triggered a massive re - appraisal of risk, and ushered in a period of the most intense financial turmoil seen in decades. the worst of the turmoil was actually fairly short - lived – a matter of weeks. but in that time a number of events occurred that have had a significant bearing on the outlook for the global economy. these included the incipient failure and / or public support of a number of major financial institutions in the united states, the united kingdom and continental europe, effective closure of many important capital markets and a worldwide decline in equity values of a quarter, leaving them around 50 per cent lower than their peak. i believe that the extraordinary actions of governments and central banks in that period – in supporting key institutions, supplying huge quantities of liquidity and offering guarantees on various obligations of banks – helped to stabilise what could have been a catastrophic loss of confidence in the global financial system. this remains a work in progress, and sentiment in financial markets remains fragile. nonetheless, since october we have seen term spreads in money markets decline ( back towards the pre - lehman, though still elevated, levels ). we have seen long - term markets re - open to banks ( by virtue of the guarantees ), public confidence in the security of the banking system maintained and the exceptional volatility abate somewhat. inevitably, however, the turmoil of september and october took a large toll on household and business confidence around the world. observing those events in real time, people everywhere understandably became much more cautious. we are now seeing the effects. consumers have pulled back their discretionary spending sharply, are more inclined to save and are looking to repay debt. businesses have seen the fall in demand, and have responded very quickly to cut production and costs, as well as putting on hold plans for expansion. nowhere is

called “ foreign ” fees – are not always properly disclosed ( and in many cases are higher than necessary ) ; the earnings stream for owners of independent atms – about half the atms in australia – are limited to the interchange fees paid by banks, which are of course their competitors ; and access by new entrants is difficult, potentially limiting competition. under the new arrangements, there will be no interchange fees. an atm owner will be able to charge the customer directly a fee for the use of the machine, but must disclose the fee prior to the transaction. banks will probably continue to allow fee - free withdrawals by their customers at their own machines, because they expect to cover those costs with the revenue earned across the entire customer relationship. use of another bank ’ s atms will presumably attract a fee by that other bank to cover the costs. but the only cost to a cardholder ’ s bank associated with use of a “ foreign ” atm is the cost of processing the transaction electronically – a matter of no more than 10 cents. given this, we cannot see any strong case for a “ foreign ” fee. independent atm owners will charge for the use of their machines, but that will maintain an incentive to grow their network. otherwise, it is likely that the independents as a source of competition would diminish over time, reducing consumer choice. access to the system will be governed by a code, which caps the price of connections, so that new competitors cannot be unduly hampered by the incumbent players over - charging to connect. the essence of the changes is simple. people have always been paying, one way or another, to use atms. atms do have a cost of operation and somehow that cost has to be covered. even where no explicit charge is levied, somewhere or other the financial institution is making up that cost. they do not provide services for free. now people will know exactly what the price of an atm transaction is, and they will know it before completing the transaction. there should be no “ foreign ” fees of any significance. and competition will be maintained, by allowing the independent atm owners to remain viable and new competitors to enter more easily. that is, in our judgment, an improvement over the arrangements of the past and is the best way of keeping costs down in the long run. my colleagues and i now look forward to your questions.