cycles, like economies everywhere. but even if it slows a lot, it will pick up again in due course and will probably grow pretty strongly, on average, over many years. in countries like australia, perhaps the long period of household debt build - up is now giving way to a period in which balance sheets will see some consolidation. if so, household credit growth will not be as fast as it was for the past decade and a half. perhaps we will need also to get better at turning borrowing for housing into more dwellings rather than just higher house prices. perhaps the finance sector globally will return to fulfilling something more like its historical role of being “ the handmaiden of industry ”, with a bit less in the way of exotic innovation of its own. in such a world, a renewed focus on the processes in the real economy which generate growth in productivity could also be apt. in the case of australia at least, it is now hard to avoid the conclusion that underlying growth in productivity has slowed over the past five years, compared with what was seen through most of the 1990s and the early part of this decade. of course, these things are notoriously hard to measure and there will be various opinions about the extent of the slowing, why it occurred and what might be done about it. nonetheless, once the immediate crisis has passed, that might be a conversation worth having.

with australia running a current account deficit, some funding for the economy needs to come from offshore. households, by and large, cannot borrow offshore and the government sector has not had much need for offshore funding. that leaves the corporate and the financial sectors. of these, the financial sector has a comparative advantage in offshore borrowing, because of the relatively high credit rating of australian banks, both compared with australian corporations and, in recent years, with banks in other countries. banks in australia have therefore established a significant role in intermediating the flow of funds from overseas to australia. banks in countries where there are surplus savings, such as those in europe, play a similar role, though in reverse ; they channel funds from domestic savers to offshore. there is a natural tendency to believe that it is riskier for banks to borrow offshore than to lend offshore. events over the past few years, however, have shown that one activity is not intrinsically more risky than the other. it is a matter of how the risks are managed. in the lead up to the financial crisis, for example, european banks were running very significant risks through their offshore lending, not only in terms of the credit quality of the us assets they were buying, but also in terms of the short - term nature of some of the funding transactions that supported those assets. the us dollar shortages that keep recurring in global money markets are manifestation of those funding risks. these risks were largely unrecognised and, it seems, not very well managed. the australian banks have long recognised the risks that come from their business model, and, in my experience, are very focused on understanding those risks and managing them. this contributed to their relatively good performance through the global financial crisis. conclusion you may have noticed that i have not given categorical answers to the three questions i listed at the start of my talk. this is because i don ’ t think it is possible to give simple “ yes ” or “ no ” answers to these questions. however, looking at a broad range of financial data, and considering the fact that the australian economy and financial system have exhibited a high degree of stability over many years, despite the many global events that have tested their resilience, is, i think, grounds for confidence that the economic and financial structure that has evolved in australia is sustainable.