rise in yields on bonds held by central banks, but issued by their own governments, is actually no risk at all once the central bank is consolidated with the government. on the other hand, to the extent that central banks are really exposed, or are exposing their governments, to private credit risk or to the risk of other sovereigns, those are genuine risks. so some central banks, like their governments, have found themselves in very unusual terrain. it is terrain : in which the relationship between the central bank and the government is subtly changed ; where the distinction between fiscal and monetary policy is less clear ; from which it may be hard to exit in the near term ; and a side effect of which may be wastage, over time, in some elements of market capability. regulation of course i have not yet mentioned the other significant public intervention in finance which is the major regulatory agenda being pursued by the international community. this is being pushed by the g - 20 process and by the financial stability board. the “ perimeter ” of regulation is being extended to include hedge funds and rating agencies. governments are demanding a say in the pay of bankers and talking of specific taxes on banks ’ activities. the climate is more difficult for bankers these days, it seems, especially in countries where the public purse had to be used to save banks. but the core work on regulatory reform is being done by the basel committee on banking supervision. i am not sure who first began to talk of this as “ basel iii ” but the label seems to be starting to stick. basel ii came in only about two years ago for many countries, 20 years after basel i. the gap between basel ii and basel iii looks like being a lot shorter. warning : that pace of acceleration in devising new standards is unsustainable! you would all be well aware of the essence of the proposals. in a nutshell, what regulators are pushing toward is a global banking system characterised by more capital and lower leverage, bigger holdings of liquid assets and undertaking less maturity transformation. it is hoped that this system will display greater resilience to adverse developments than the one that grew up during the 1990s and 2000s. what will be the implications of the various changes? put simply, the customers of banks around the world, and especially of large internationally active banks, will generally be paying more for intermediation services, in the form of higher spreads between rates paid by banks and rates charged by them. the reason is that capital is not free and it

##ving underneath these aggregate figures, so as to better understand the factors affecting individuals ’ decisions about saving and spending. one way that we do this is to use the hilda ( household, income and labour dynamics in australia ) survey which, each year, tracks the finances of individual households. although the survey does not ask households how much they saved each year, saving ratios can be estimated from 2006 onwards using the income and spending numbers reported in the survey. 2 having done this, we can compare how the distribution of saving ratios across the population changed between 2006 and 2009, the latest year for which data are available. this period is especially interesting because of the large increase in the aggregate saving ratio that occurred, with 2009 marking a peak in the aggregate ratio. graph 2 perhaps the easiest way to summarise the results is to show how the median of the distribution has changed over time ( graph 2 ). between 2006 and 2007, the median saving ratio increased by 1 percentage point. it increased by a further 2 percentage points in 2008 and then jumped by 4 percentage points in 2009, for a cumulative increase of 7 percentage see stevens g ( 2011 ), “ the cautious consumer ”, address to the anika foundation luncheon, sydney 26 july. similar changes are evident across the entire distribution of saving ratios. bis central bankers ’ speeches points over these three years. 3 this figure turns out to be quite close to the 8 percentage points increase in the aggregate saving ratio over this period calculated from the national accounts. the micro level data suggest that the increase in saving ratios was quite widespread across the population. it also confirms that an increase in saving ratios was occurring prior to the financial crisis, but that the crisis saw a marked acceleration of this trend. when we drill down into the data in more detail, an increase in saving ratios is apparent across the entire income distribution, although not surprisingly, the increase is smallest for households with the lowest incomes ( graph 3 ). 4 many of these low - income households spend a significant share of their income on the basic necessities and they have limited scope to increase the share of their income that they save. graph 3 another way of looking at the data is by housing tenure. graph 4 shows that the saving ratio has increased for those that rent, for those with a mortgage and for those that own their dwelling outright. this again confirms that the increase in saving has been quite widespread, although, the increase in saving has been smallest for those households that own their dwelling outright. the