guy debelle : perspectives on financial markets remarks by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, to the centre for international finance and regulation ( cifr ) forum, sydney, 20 november 2013. * * * i would like to make a few general points about the financial regulatory agenda. a number of the regulatory changes in financial markets have increased the price of financial intermediation and the provision of financial services generally. this has very much been the intent, and not, to re - use one of the most overused expressions around at the moment, an unintended consequence. the price of intermediation was too low before the crisis ; now it is higher. it was too low in the sense that risks were underpriced. these risks include liquidity risk and counterparty risk. reforms such as the basel iii liquidity reforms or the otc reforms are aimed at ensuring these risks are more appropriately priced. as financial institutions are adapting to these reforms, they are repricing many of the services they are providing to take fuller account of these risks. this repricing is gradually occurring only now in many cases and there is more to come. hence end users of these services are only now starting to see the impact of these reforms in the form of higher prices. as in many markets, when a price goes up, the quantity tends to go down. again, this is to be expected, and desired. it is not unintended. what is less clear is whether various regulations are having an impact on the market, above and beyond the effect caused by a higher price. the general aim is for the price element to do most of the work, but in some cases, regulations with a quantitative element are in place as a backstop. let me give as one example of this, the effect of regulation on dealer inventories of fixed income. liquidity regulation has caused some repricing in the market, with somewhat lower inventories, particularly of less liquid securities, as a result. so aspects of the regulation have increased the cost and you would expect that to increase the price of providing the service. in this case, that would be a wider bid - ask spread. in turn, you would expect that to lower turnover. conceptually, the leverage ratio sits there as a backstop limiting the overall size of institutions ’ balance sheets. whether it binds in practice depends on the structure of the whole balance sheet. given the general

per cent within the tenth plan period ( 2002 - 03 to 2006 - 07 ) ; • reduction of infant mortality rate ( imr ) to 45 per 1000 live births by 2007 and to 28 by 2012 ; • reduction of maternal mortality ratio ( mmr ) to 2 per 1000 live births by 2007 and to 1 by 2012 ; • all villages to have sustained access to potable drinking water within the plan period ; i am sure that these goals, on implementation, are going to make significant difference to the lives of millions in india. as you are aware, government of india has launched major efforts to realise these goals. health is paramount to good living. the national rural health mission ( nrhm ) with focus on grass root level public health interventions based on community ownership has been announced for roll out in 2005 - 06. the budget for the department of health and the department of family welfare has been increased by 22 % to rs. 10, 280 crore in 2005 - 06. in the all important sector of education the government has responded to the needs by allocating rs. 4, 754 crore for the sarva shiksha abhiyan programme which is the cornerstone of the government ’ s intervention in basic education for all children. this constitute an increase of 55 % over 2004 - 05. a non - lapsable fund called “ prarambhik shiksha kosh ” has been created for funding this programme with increased allocation of rs. 7, 156 crore in 2005 - 06. the national food for work programme which was launched in november 2004, is being supported with an overall allocation of rs. 11, 000 crore. the government has proposed to convert this programme into the national rural employment guarantee scheme which, when fully rolled out, will provide livelihood security to crores of poor families. state finance and human development the above enumeration of the goals of human development clearly points out to the necessity of funds for achieving higher quality of life. interestingly, many of the constituents of such a package, are in the domain of the state governments. it is here that that state finance and human development develops a strong bondage. what has been the state of the states ’ finances in recent years? the economic survey, 2004 - 05 pointed out that the deterioration in the finances of state governments has been sharper than that of the central government. all the major fiscal indicators reveal a worsening of the fiscal situation as compared with the position obtaining in 1990 - 91. fiscal deficit of states as a proportion