Transcript of Question & Answer Session Remarks on Liquidity

General question, what are your thoughts about the new type of that securities issued by banks which convert into ordinary shares in time of bank distress?

I very much agree with what Rob said, I mean - and it comes very much to the presentation you gave, if you want banks to hold more equity well get them to hold more equity; if that's really what you care about. And you know you've already got a whole credit structure for a financial institution in there, so I'm not so sure about the value that a letter CoCo adds to that structure. As I said if really what you're after is just a larger equity buffer well make them have a larger equity buffer. That said at least as best as I know and you probably know this better than I Kurt that at least if you look at the CoCo's that Credit Suisse has issued it is priced between equity and debt. As I said you know we already had decently large credit – a credit structure of liabilities wasn't quite clear that there was a massive gap missing there.

I was just wondering whether – a question for all the panel whether the optimal failure rate of banks and financial institutions is zero. You know we have creative destruction in many industries, is it really the right thing to do to prevent to impose capital requirements so that we don't have any failures.

I mean I think your measure is very much – well that's why there's S in front of it right it's systemic and the way at least from seeing me present this a few times now, it's very much that it's a generalised movement in equity valuation not an idiosyncratic move. I mean the liquidity regime is very much the same, it's about you know a systemic liquidity situation not about an idiosyncratic liquidity situation where there are very obvious externalities to the rest of the financial sector.

Hi I'm Kai Chow from the Financial Review I've got a question for Dr Debelle. In the RBA minutes that have just come out, you knew you were going to get these Guy.

Can we talk about liquidity and bank systemic risk is that possible?

Well I do have a question about markets then, we've got QE tapering that's on the agenda again, if they take a more conservative or compromised approach so they go from 85 to say 80 or 75 what do you think the impact on markets would be on Australian markets for something like that?

No one knows what's priced in - around that at the moment, so I'm not sure that you know we'll just have to wait and see.

Asking about the super sector and liquidity. Just generally to what extent do you think there's liquidity risk in that sector and do you think like banks there should be some sort of re-allocation of assets there?

I don't know it necessarily implies the latter which is a different holding of assets. I think it's just more about – it's as much just about thinking about it, doesn't necessarily mean that the asset allocation needs to change, it's just it's not clear to me - you often hear about it in terms of we have to be very concerned because of the portability of super that you will suddenly have this massive shift either in terms of the asset – in terms of the asset allocation of the super holders or from one super fund to another, and I suppose the point I was making is well that sounds a lot like a bank run, in the sense that you know we don't make banks hold liquidity on the assumption that there is going to be a bank run, we have a probabilistic assessment of how likely there are that the various liabilities are going to fall due within a particular period and make them hold a liquidity risk against that. It's not clear to me that that's exactly the way that the super sector thinks about it. As I said they either think about well you know all of our investors could turn up at once and want to switch from one asset class to another rather than thinking well I should make some provision against that, so I certainly shouldn't hold presumably the answer is zero but nor should I assume that the answer is 100 per cent.