One of the notable points in the Reserve Bank of Australia's annual report, released yesterday, was that the Bank's balance sheet grew by around A$43 billion over 2013/14 to about $141 billion. The increase was driven by three main factors: an increase in exchange settlement balances held by authorised deposit taking institutions with the Bank; a rise in balances held by the Australian Government on deposit; and a Commonwealth grant to the Bank.'Underlying' earnings, which are essentially net interest earnings less the Bank's operating costs, declined to $442 million in 2013/14, from around $700 million in the previous two years. But the biggest effects on the Bank's balance sheet and earnings over the past year stem from some major decisions taken in Australia - two in particular.To facilitate the faster settlement of a number of electronic payments, financial institutions are now holding higher balances with the Reserve Bank in their ES accounts. These balances have increased by around $21 billion following the introduction in November 2013 of new arrangements designed to ensure ES account holders have sufficient liquidity buffers to meet their interbank payment obligations and facilitate same-day settlement after normal banking hours. ADIs fund these balances using reverse repurchase agreements with the Bank that do not have a maturity date (known as open repo positions).Balances held by the Australian Government on deposit with the Reserve Bank increased by around $9 billion over the financial year. These deposits are predominantly used by the government to manage the mismatch in timing between its receipts and outlays and can vary considerably over the course of the year. In May, the government also made an $8.8 billion grant to the Reserve Bank to bolster the Bank's capital position. When the transfer to the Bank occurred, Australian Government deposits declined and funds available for distribution to the government increased.