environment that prevailed around the world in the pre - crisis years as a key driver in that regard. this was itself a function of deeper factors that were much debated at the time, including what some saw as a global “ glut of saving ” along with concerns about deflation risks following the collapse of the earlier tech bubble. i won ’ t go into that debate today other than to note the consequences. periods of low interest rates are not uncommon, but what was unusual in this case was its persistence across large parts of the world. while not making a crisis inevitable, it contributed to simultaneous risktaking and hence vulnerabilities in a number of the major economies. another factor is the increasing size and complexity of financial systems. it has been a general pattern, at least within the post - war period, that financial systems have tended to grow faster than the economies that they service. there are some good reasons to expect this to be the case. as societies get richer, the proportion of income that people are prepared to spend on financial services tends to rise. at the same time, technological progress supports innovation and new forms of financial risk - taking. the result is a general trend towards financial deepening as economies develop. in 2006 the outgoing reserve bank governor ian macfarlane made the prediction that these factors would change the nature of the business cycle. in particular he expected that future cycles would be driven more by financial events than by the shocks to demand and spending that had predominated in the post - war period to date. it was a prescient observation, coming not long before the onset of the gfc. 3 a third factor is that this has really been two separate crises joined together. there was a crisis of asset quality, financial over - engineering and leverage driven by the forces that i have already described. but there was also a crisis of confidence in the stability of the euro see for example, bernanke bs ( 2004 ), “ the great moderation ”, remarks at the meetings of the east economic association, washington, dc, 20 february. macfarlane ij ( 2006 ), the search for stability, boyer lectures 2006, abc books, sydney. bis central bankers ’ speeches as a single currency area. the first one triggered the second, but the euro area vulnerabilities were already present for reasons unconnected to the origins of the gfc. observers had previously questioned whether the euro area had the necessary governance arrangements to ensure resilience. at heart the

stephen s poloz : opening statement before the house of commons standing committee on finance opening statement by mr stephen s poloz, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 28 april 2015. * * * good morning, mr. chairman and committee members. carolyn and i are happy to be here for one of our twice - yearly meetings on our monetary policy report ( mpr ). today we will outline for you the bank ’ s latest economic outlook, published in our mpr on 15 april. in this volatile and uncertain environment, it is helpful to maintain a historical perspective. when we appeared before this committee a year ago, the price of brent crude oil was at $ 100 per barrel. it had risen steadily for a decade, from $ 25 in 2002 to a peak of just over $ 110 in 2012. by november, when we last met with you, oil prices had fallen to what was then their lowest level in four years. the average price of brent was $ 90 per barrel. it was clear to us that while lower oil prices would benefit consumers, the net impact on the economy would be negative. lower oil prices would reduce canada ’ s terms of trade and domestic income and have a material impact on investment, activity in the oil sector, and the associated manufacturing supply chain. all of that happened quite quickly over the next two months. by january, brent prices had dropped to an average of $ 60. oil prices are an important component of canada ’ s terms of trade and one of the key drivers of movements in the canadian dollar. as oil prices rose over the 2002 – 12 period, so did the value of the dollar, increasing from around 63 cents to above parity. now, the fall in oil prices has set in motion complex dynamics, including sectoral and regional adjustments, which will take time to work their way through the economy. the negative effects of lower oil prices hit some sectors of the economy right away. for example, the impact of lower prices on income and wealth has already led to a fall in household spending. the various positives – more exports because of a stronger u. s. economy and a lower canadian dollar, and more consumption spending as households spend less on fuel – will arrive only gradually, and are of uncertain size. therefore, in january we faced a risk that returning the canadian economy to full capacity and stable 2 per cent inflation would be delayed significantly. accordingly, we took out some insurance