prices declined and investors experienced losses as the value of the underlying assets declined. this did not lead to stability issues in the broader system, although the freezes did cause hardship for some individual investors. so our own experience is that these types of disruptions in the asset management industry can be managed. however, the degree to which this lesson can be applied more broadly remains to be seen. globally, there is considerable effort being devoted to understanding the nature of the risks in this area, including whether these risks are any different to those that would arise if investment portfolios were managed directly by the individual investors themselves, without the input of an asset manager. a related stream of work – which in some way parallels similar work for the banking industry – is to examine what role regulation should play in addressing the various risks and what role the central bank should play. relevant issues here include : how prescriptive any liquidity regulations should be ; what are the merits of alternatives to fund freezes, such as exit fees and liquidity gates ; and what, if any, role should the central bank play when markets freeze and normally liquid assets cannot be traded. these are all difficult issues to deal with and perspectives range widely. i am sure that they will keep many of us busy over the years ahead. on that note, i would like to thank you for listening and i would be happy to answer any questions. bis central bankers ’ speeches references apra ( australian prudential regulation authority ) ( 2013 ) “ implementing basel iii liquidity reforms in australia ”, apra discussion paper, may. available at http : / / www. apra. gov. au / adi / prudentialframework / pages / implementing - basel - iii - liquidityreforms - in - australia - may - 2013. aspx. apra ( 2014 ), “ apra finalises implementation of liquidity coverage ratio in australia ”, media release no 14. 22, november. available at http : / / www. apra. gov. au / mediareleases / pages / 14 _ 22. aspx. cheshire j ( 2015 ), “ market making in bond markets ”, rba bulletin, march, pp 63 – 73. cusbert t and rohling t ( 2013 ), “ currency demand during the global financial crisis : evidence from australia ”, rba research discussion paper no 2013 – 01. debelle g ( 2014 ), “ liquidity ”, speech at

philip lowe : the transformation in maturity transformation address by mr philip lowe, deputy governor of the reserve bank of australia, to thomson reuters ’ 3rd australian regulatory summit, sydney, 27 may 2015. * * * i would like to thank fiona price and carl schwartz for assistance in the preparation of these remarks. accompanying graphs can be found at the end of the speech. thank you very much for the invitation to be part of thomson reuters ’ third australian regulatory summit. there is no shortage of things to talk about at such a summit. as you are all too aware, there has been a large wave of new regulatory requirements over recent years. the task of adjusting to these new requirements has been a time - consuming one for many of you and that task is not yet over. this wave of regulation, of course, has not just materialised out of thin air. rather, it has been in response to the lessons learnt from the financial crisis. that crisis was extremely damaging for the citizens of many countries and the subsequent spotlight on financial institutions has highlighted not just poor risk - management practices but also some serious lapses in governance and ethics. as the various problems have emerged, they have strained the bonds of trust that are so important in finance. in response, regulators, and financial institutions themselves, have sought to reduce the probability of a repeat of the crisis and to rebuild trust in finance. on both accounts, there is still some way to go. if we look through all the detail of the various regulatory initiatives – and there is certainly a tremendous amount of detail – many of the specific measures stem from the desire to address risks that arise when the financial system undertakes maturity transformation – that is, when it transforms illiquid longer - term assets into liquid assets. so today, rather than go through the long list of regulatory reforms, i would like to focus my remarks around the way in which the financial system undertakes maturity transformation. maturity transformation and the banking system the transformation of claims over fundamentally illiquid assets into claims that are highly liquid is one of the critical functions that the financial sector provides for the community. without such transformation, it is difficult to see how modern economies would work. this transformation has been critical to the accumulation of physical capital in our societies as well as the operation of our modern payment systems. the best, and most obvious, example, of this type of transformation is an at - call bank deposit. 1 the holder of a deposit has a completely liquid claim on the bank – the full