own reputation or expose itself or its customers to loss in order to assist a troubled section 20 affiliate or a failed underwriting by that affiliate. also, because securities activities are conducted in an affiliate, banks are limited in their ability to fund those activities by sections 23a and 23b of the federal reserve act. these restrictions are vitally important. section 23a limits the total value of transactions with any one affiliate to 10 percent of the bank ’ s capital and limits transactions with all affiliates to 20 percent of capital. it also requires that substantial collateral be pledged to the bank for any extension of credit. section 23b requires that inter - affiliate transactions be at arm ’ s length and on market terms, and imposes other restrictions designed to limit conflicts of interest. thus, affiliate status prevents the bank from passing along the federal subsidy inherent in the federal safety net to its section 20 affiliate by extending credit. regulators could conceivably limit a bank ’ s ability to use credit to subsidize a direct securities subsidiary of the bank as well, by applying sections 23a and 23b. but the equity investment in the subsidiary would still be funded from subsidized resources backed by the federal safety net. even if the investment were deducted from the capital of the bank, the subsidy inherent in the transfer would remain. a second protection is examination of the bank holding company, including the effect of securities activities on insured depository institution subsidiaries. the federal reserve as holding company regulator monitors compliance with sections 23a and 23b and other aspects of the relationship between a bank and its section 20 affiliate. in its supervision of bank holding companies, the board increasingly pays attention to risk management systems and policies that are centralized at the holding company level and govern both the bank and its section 20 affiliate. a final series of protections is the regulatory regime that applies to all broker - dealers, including section 20 subsidiaries. the securities act of 1933 and the securities exchange act of 1934 impose registration, capital and disclosure requirements, anti - fraud protections, and other investor - protection measures. these laws, and their enforcement by the securities and exchange commission, address many of the safety and soundness and conflict - of - interest concerns about affiliation of commercial and investment banks. i note that most of these important protections were not in place when the glass - steagall act passed in 1933. thus, although proponents of high firewalls frequently cite the subtle hazards of affiliation discussed in the legislative history of that act, the

have been more settled and some of the earlier decline in equity prices has been reversed. this has been partly on the back of a reassessment of the path of monetary policy in the united states, with markets no longer pricing in further increases in us interest rates. there has also been a noticeable fall in long - term government bond yields. 3 / 13 bis central bankers'speeches graph 3 the adjustments in financial markets over our summer sometimes generated reporting that, to me, seemed overly excitable. i lost count of how many times i read the words ‘ crash ’, ‘ plunge ’ and ‘ dive ’. yet there is a positive side to some of these adjustments, which gets less reported on. the risks associated with stretched valuations in some equity markets have lessened. so, too, have concerns that very low credit spreads could lead to an excessive build - up of risk. and risks in many emerging market economies have also receded, helped by the lower global interest rates and lower oil prices. so it is important to look at the whole picture. for australia, what happens in china is especially important. growth there has slowed. from a medium - term perspective, this has a positive side, as it mainly reflects efforts to rein in risky financial practices and stabilise debt levels. but the slowing is probably faster than the government had hoped for, with the economy feeling the effects of the trade dispute with the united states and the squeezing of finance to the private sector. the authorities have responded by easing policy in some areas, but they are walking a fine line between supporting the economy and addressing the debt problem. there is also the question of how the economy responds to the policy easing. more broadly, we cannot insulate ourselves completely from the global risks, but keeping our house in order can go a long way to assist. our floating exchange rate and the flexibility we have on both monetary and fiscal policies provide us with a degree of insulation. so, too, does our flexible labour market. ensuring that we have predictable and consistent economic policies, credible public institutions and a reform agenda that supports a strong economy can also help in 4 / 13 bis central bankers'speeches an uncertain world. the domestic outlook i would now like to turn to the outlook for the australian economy. much as is the case globally, the downside risks have increased, although we still expect the australian economy to grow at a reasonable pace over the next couple of years. the australian economy is benefiting from strong growth