Banks accounted for a little over 20 per cent of Australia’s foreign liabilities in 1990 but, by 2001, this had risen to around 40 per cent. It has not changed much in the past decade (Graph 9). Part of this trend was the result of banks adjusting their balance sheets following financial deregulation and the growth of financial markets.
So we have identified the elements of systemic risk and how this has shaped financial crises and policy responses. Let us now look at how the financial system has weathered the Covid storm. First and foremost, the bold policy response by governments, central banks and supervisors, helped maintain global financial stability and sustain the supply of credit to the economy.