, including the bank of canada, have a responsibility to promote the stability and soundness of their country's financial system. a market economy, like ours, cannot function well without the support of a strong financial system. sound financial institutions, a robust financial infrastructure, and efficient financial markets are necessary to facilitate transactions and to properly channel savings into investments. for an economy to perform well, individuals and businesses must be confident that money and financial claims can be reliably and efficiently created, held, transferred, and settled. now, if the arrangements that are in place do not work properly, the financial system can turn into a channel through which shocks are amplified as they are transmitted from one part of the system to the next and also beyond national borders. whether such shocks are of an economic nature or whether they originate in the financial system itself, they can end up having an important impact on the economy as a whole. so there are good reasons why countries should ensure that their financial systems work well and that they do not trigger or spread instability domestically and internationally. the bank's contribution to domestic financial stability in canada, the bank shares the responsibility for financial stability at the federal level with three other entities - the office of the superintendent of financial institutions, the canada deposit insurance corporation, and the department of finance. various provincial bodies also play an important role. the bank focuses its attention mainly on macro financial stability issues, leaving the principal responsibility for micro issues to the other entities. the bank's overriding concern is to ensure that the financial system is sound and that it works efficiently. in this context, we provide liquidity to the system, in both ordinary and extraordinary situations. we give policy advice to the federal government on the design and development of the financial system. through our oversight of major clearing and settlement systems, we act to make sure that the failure of a participant does not lead to domino effects and to generalized instability. and we provide banking services to these systems and to their participants. finally, we collaborate with other domestic and international bodies that work on financialstability issues. thanks to the collective efforts of all those charged with the promotion of financial stability in canada, we have a financial system that is efficient and robust. and, as recognized by the international monetary fund ( imf ) in 1999, it complies with all major international standards. but the financial landscape is constantly changing. under pressure from greater global competition, and with the benefit of new information technology, more sophisticated financial products are

david dodge : the bank of canada and financial stability remarks by david dodge, governor of the bank of canada, to the montreal society of financial analysts, montreal, quebec on 20 march 2001. * * * i am pleased to be in montreal today. last month, in my first public speech as governor of the bank of canada, i talked about our contribution to good economic performance through low, stable, and predictable inflation. i also stressed the importance of frank dialogue with financial markets and the general public in helping the bank formulate and implement monetary policy successfully, particularly at times of increased uncertainty. while monetary stability through low inflation is crucial to good economic performance, our economy cannot function properly unless it is also supported by an efficient and stable financial system. and as the world economy becomes increasingly interconnected, sound macroeconomic policies and sound financial systems across all countries are even more essential. today, i would like to talk about the bank's contribution to financial stability at home and abroad. i will also comment briefly on the current economic situation. canada as an international player as an open economy, canada is very much affected by what goes on in the rest of the world. so we have more than a passing interest in promoting a sound and robust international environment. since more than 80 per cent of our foreign trade is with the united states, it is developments in that country that have the most profound impact on our economy. recent experience, however, has shown that even events in faraway places can reverberate back home. the mexican peso crisis of 1994 – 95 and the asian financial crisis of 1997 – 98 are cases in point. in both instances, canada was sideswiped by those events. if this somehow leaves the impression that globalization - the increasing integration of economies and financial markets - has been of questionable value, i hasten to add that this is not how i see it. on the contrary, i believe that globalization has been, and will continue to be, a source of opportunity and growth for montreal, for canada, and for the rest of the world. recent episodes, however, have highlighted certain vulnerabilities in the global financial system. and we must deal with them, if the benefits of economic and financial integration are to be fully realized by everyone in today's " global village. " let me tell you what the bank is doing to promote financial stability. the importance of sound financial systems in addition to pursuing monetary stability through a low - inflation policy, all central banks