statutory objective of the microprudential regulator is the safety and soundness of the firms which we prudentially regulate – banks, insurers and major investment firms. moreover, our objective of safety and soundness sits in the context of the stability of the financial system. what does that mean? one clear example is that we are not a no firm failure regulator. orderly failure which does not disrupt our statutory objectives is part of supporting a functioning market economy. we have learned the hard way that financial stability is essential for supporting growth and employment. we have seen the effects of damaging financial stability, and the consequences in terms of lost output and the need to use public money to counteract the inability of the tools of the day to deal with the threat of the collapse of the system. we have also seen the long - lasting effects of that loss of financial stability. i remember that in the early stages of the financial crisis, most forecasts suggested a recovery would take hold in a year or so, on the assumption that the policy tools available at the time would be effective. that did not happen. a crucial lesson from that experience was the importance of policy coordination, which is why it is so much at the heart of the new role of the bank of england. the remits of the mpc and bis central bankers ’ speeches fpc require the committees to explain how they have regard to the policies of each other. in the last year, we have seen that coordination at work. almost a year ago, the bank and treasury introduced the funding for lending scheme. the bank also introduced an extended collateralised term repo facility. at that time, the fsa eased banks liquid asset requirements following a recommendation from the fpc, and also the fsa relaxed capital requirements on eligible net new bank lending as part of a deliberate set of actions to combine the objective of resilience with supporting activity in the economy. since then, the focus has been on the capital of the banks more than anything else. the fpc has recommended to the pra that it should seek to establish a minimum level of capital on the final basel 3 measure of at least 7 % after taking account of three issues, namely uncertainty around asset valuation in more vulnerable portfolios, possible future conduct of business costs, and aggressive use of risk weightings. a further test is to consider whether banks are making acceptable progress towards the basel 3 minimum leverage ratio ( leverage is a simple concept in many respects, but it is

and create jobs is the best we have had in years. i also believe that continued credible fiscal and monetary policies have an important role to play. the best contribution monetary policy can make towards achieving that potential is to ensure that the economic expansion remains sustainable over the medium term. as we have learned over the past 25 years, a sustained expansion is not possible unless we can avoid a resurgence of inflation and the painful cycles of boom and bust that go with it. thus, the challenge for monetary policy will be to set monetary conditions at levels that allow the economy to expand at a pace that makes full use of its production capacity and at the same time preserves low inflation. it is by conducting monetary policy prudently during the upswing that the bank can assure canadians that inflation will not break out when the economy begins to operate at levels that push against capacity limits. if we succeed in providing that confidence, we will then have the flexibility that will allow us to carefully explore the limits of growth and employment without immediately putting the economic expansion at risk. concluding remarks let me summarize my main messages to you today. the extraordinary monetary stimulus of the recent past has accomplished its task. it has supported the economy through a period of difficult but necessary restructuring. as the impact of this restructuring subsides and our economy enters a phase of self - sustaining expansion, we will no longer need the same amount of monetary stimulus. because the economy takes time to respond to monetary policy actions, the bank has to focus on the future. this means taking steps early to ensure that we will reach full capacity at a sustainable cruising speed. of course, projections of future economic trends need constant reassessment. and that is particularly true at a time of nervous financial markets and uncertainty about the implications that events in asia may have for the world economy. as i said earlier, the bank continues to monitor the current global situation carefully. aside from any complications that could arise from a prolonged period of international instability, the canadian economy in the next year or so should absorb the unused capacity that we now see. at that point, we will begin to see concrete evidence of the kind of payoffs we are going to get from the economic restructuring process we have been through. with low inflation and a sound fiscal position, the canadian economy is now in a better position than it has been for years to weather the impact of unexpected international developments and to make progress in generating higher incomes and employment.