The GFC revealed an inherent vulnerability within the local banking system, says Dr Morgan.
This Achilles heel is the low level of retail deposits which in turn leaves our banks dependant on foreign wholesale funding.
It was this foreign wholesale funding market that closed down completely at the height of the GFC. Were it not for the Government lending its AAA rating to local banks, they too would have closed down, says Dr Morgan.
The solution, according to Dr Morgan, involves changing the end destination of national savings – perhaps turning back the trend that has seen superannuation balances grow at the expense of bank deposits.
One potential way to do this is for tax reform to make bank deposits more attractive - and superannuation less attractive.