course, there is much more work to be done as actual volumes are still a fraction of these levels. for such initiatives to be fully successful, regulatory capital requirements should reinforce incentives to process standardized products centrally. that is, trading in standardized products should be capital advantaged and limited basis risk should not result in punitive capital charges. bespoke transactions will continue to have their place, but should be subject to higher capital requirements so that incentives are appropriately aligned. securitization needs to be made more sustainable a more resilient financial system will require a return of private - label securitization. when properly structured, securitization can diversify risk, provide competitive discipline on banks and lower borrowing costs for individuals and businesses. much more must be done to ensure that these objectives can be achieved. securitization has been slow to come back for two reasons. first, some core buyers of senior tranches ( structured investment vehicles, canadian non - bank asset - backed commercial paper ( abcp ), balance sheets of large banks ) will not return. this alone will shrink the market substantially. some of this shortfall in financing capacity will be replaced over time with on - balance sheet credit risk, though the prospect of leverage ratios will limit future buying by banks of senior tranches. second, the crisis laid bare important structural deficiencies, such as the woefully inadequate disclosure on securitized products. transparency should be improved so that risk can be identified more effectively and priced more efficiently. for example, the bank of canada used its collateral policy to improve the disclosure of bank - sponsored abcp, creating a standard that should become commonplace. more generally, we advocate publication of models and data underlying securities to move securitization from " black box " to " open source. " there are also a host of initiatives for underwriters to have skin in the game ( keep similar products or first loss ). the bank is working with government and industry players to explore the effectiveness of these and other alternatives. an integrated approach to return risk to the private sector the financial panic required a bold response. while absolutely necessary, the response has profoundly shifted risk from the private to the public sector. the expedient should not become permanent. risks must be returned to and, borne by, the private sector. however, this can only happen if banks are resilient and if markets are built on solid foundations. this will require a set of reforms that are internally consistent and

9 per cent in the third quarter, reflecting large year - on - year drops in energy prices. total cpi inflation should rise to 1. 0 per cent this quarter, while the core rate of inflation is projected to reach its trough of 1. 4 per cent during the same period. owing to the substantial excess supply that has emerged in the economy, the bank expects both core and total inflation to return to the 2 per cent target in the third quarter of 2011, one quarter later than we projected in july. the main upside risks to inflation relate to the possibility of a stronger - than - anticipated recovery in the global economy and more robust canadian domestic demand. on the downside, the global recovery could be even more protracted than projected. in addition, a stronger - than - assumed canadian dollar, driven by global portfolio movements out of u. s. - dollar assets, could act as a significant further drag on growth and put additional downward pressure on inflation. on tuesday, the bank reaffirmed its conditional commitment to maintain its target for the overnight rate at the effective lower bound of 1 / 4 per cent until the end of june 2010 in order to achieve the inflation target. the bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework that we outlined in the april mpr. as i said last week, our focus in the conduct of monetary policy is on achieving the 2 percent inflation target. the exchange rate should be seen in this context. it is an important relative price, which the bank monitors closely. what ultimately matters is the exchange rate ’ s impact in conjunction with all other domestic and foreign factors on aggregate demand and inflation in canada. to put it simply, the bank looks at everything through the prism of achieving our inflation target. current macrofinancial environment as many of you have no doubt noticed, it is currently a very constructive environment for financial institutions. flow trading and market making have become more attractive and intermediation spreads have increased. underwriting fees have recovered along with the capital markets ; and there are very early signs that an appetite for mergers and acquisitions has returned. banks are once again being compensated for their basic businesses of providing liquidity and credit. interestingly, despite the fall in measured volatility, industry var, while down from the peak earlier this year, is still above pre - lehman levels. what is perhaps less evident is that these returns are largely the product of public policy. while medium - term challenges clearly remain