A significant decline in bank holdings of financial assets played a role in the volatility that was a feature of global and domestic financial markets in the 2014/15 financial year.According to the Australian Financial Markets Association's 2015 market review, banks' holdings of financial assets have declined by 40 per cent globally since the financial crisis. AFMA economist Stephen Kirchner said there was no data available on the decline in Australia but the order of magnitude would not be all that different from the global trend.The decline is the result of post-crisis regulation designed to shift risk from the banking system to financial markets. Banks have less balance sheet capacity available for market-making.Kirchner said this change was apparent in markets during the year, when "there were times when market depth was not there."He said greater use of hedging tools such as interest rate derivatives compensated for the decline in traditional bank market-making but it did not fully offset the decline.The Reserve Bank warned of such an outcome last year. Speaking at the Citi Australian Investment Conference last October, RBA assistant governor Guy Debelle said: "Regulatory changes have, as intended, increased the cost of market-making and hence shifted some liquidity risk to end investors. The question today is whether there is too little capacity."He warned that investors were buying assets, particularly fixed interest assets, on the assumption of a level of liquidity that was no longer there.Kirchner said it remained to be seen whether this would be a long-term problem. "There is a lot of work to be done on regulatory implementation. Over time we will know if volatility has increased permanently."The AFMA report shows financial market turnover increased by 7.2 per cent in the year to June.Commonwealth Government securities on issue rose from A$319.5 billion to $370 billion, although secondary market trading in CGS fell 3.6 per cent.Non-financial corporate bond issuance was steady at around $10 billion. On the positive side, a number of new credit issuers entered the market and maturities moved out past the traditional five years.On the Australian Securities Exchange, 120 new entities were listed and capital raised from initial public offerings rose 35 per cent to $89 billion. Average daily market trading rose 16 per cent to $3.8 billion.