Over the past decade, Australia has experienced an extremely large external shock in the form of a resources boom (Graph 6). This shock has had three phases. The first phase was a very large increase in commodity prices. The second was a very large increase in resources sector investment. And the third phase is a very large increase in resources sector production and exports.
It is thus a welcome development that German banks have increased their capital since the financial crisis. This is due to numerous microprudential regulatory measures that have already been implemented or will be implemented in the near future as well as to capital buffers for systemically important banks. However, the vulnerabilities are not confined to individual institutions; they affect the entire system.