for similar reasons, margins on derivatives transactions and haircuts on collateral increased. these stresses in the shadow banking system amplified the stresses on the financial system more generally and transmitted them globally. another underlying issue that surfaced was the misalignment of incentives. here, a striking example is the case of mortgage - backed securities, structured products and the “ originate to distribute ” model. since investors could not readily assess the quality of the assets backing “ wrong - way ” risk refers to the risk that the value of collateral is more likely to decline under the same circumstances in which a counterparty is more likely to default. ( in other words, collateral turns out to be insufficient precisely when it is needed most ). bis central bankers ’ speeches these securities, there was an incentive for originators to use, and over - issue, lower - quality assets, knowing that they would earn the origination fees, while the investors would bear the risk. moreover, the complexity of some structured products obscured high levels of leverage, which exacerbated losses when the underlying asset values declined. 3 the linkages between traditional banks and shadow banks meant that vulnerabilities spread. for example, when asset - backed securities came under pressure, the sponsoring banks faced significant drains through the credit and liquidity lines they had provided. in some cases, they ended up standing behind the asset - backed securities they had sponsored, largely to maintain their reputations, despite having no legal obligation to do so. at the same time, since shadow banking had become an important source of funding for the banks themselves, stresses in shadow banking had an impact on the banks : for example, when repo markets seized up, banks faced severe funding pressures. how to fix it? the experience of the crisis points to a need for reforms that will enable shadow banking to continue to play a useful role while addressing its inherent risks. the purpose here is not to stamp out all risk, but to ensure that risks are appropriately understood and managed. a related purpose is to prevent an increase in shadow banking activity driven solely by regulatory arbitrage in response to the tightening of regulations faced by banks. the financial stability board ( fsb ) has mapped out international work on shadow banking, identifying five work streams : links between banks and shadow banking ; money market funds ; other shadow banking organizations ; securitization ; and securities lending and repos. the fsb has also begun monitoring the evolution of the sector and the associated risks. to guide the key

timothy lane : are we there yet? the united states and canada after the global financial crisis remarks by mr timothy lane, deputy governor of the bank of canada, at carleton university, ottawa, ontario, 24 september 2014. * * * introduction it is a pleasure to be here at carleton university. it has been a long time since i was a student here, but i still get caught up in the back - toschool feeling of september. it ’ s a time of fresh starts and renewed energy. today i would like to talk about the economies of the united states and canada and how our economic ties are evolving as the recovery from the financial crisis of 2008 – 09 continues. i will discuss the impact on canada of the federal reserve ’ s unconventional monetary policies, and how canada will be affected as these policies are gradually brought back to normal. while there are risks associated with this process, the bank of canada sees it as a positive sign that the u. s. economy is experiencing its own fresh start and gaining renewed energy. ties that bind... sort of let me start with the ties between the united states and canada. we are more than neighbours ; perhaps we are more like fourth - year roommates. economically, we need each other and have strong links. over the years, we ’ ve been through good times and bad. we live comfortably together, provided that we respect each other ’ s space. on the whole, having our fortunes linked with those of the united states works in canada ’ s favour. our businesses can take advantage of the opportunities of a much larger market. that means more jobs in canada. but, over the past several years, we have also been reminded that these strong ties expose us to adverse forces in times of stress. the old cliche is that “ when the u. s. sneezes, canada catches a cold. ” there is an element of truth to that adage, but it only goes so far. our economies do not move perfectly in sync, partly because they are structurally different : most obviously, ours is much more reliant on natural resources. and despite the strong influence of the united states, as economic policy - makers in canada, we have plenty of scope to follow a different path. to explore these ties – particularly as they relate to my own field, monetary policy – let ’ s take a closer look at the financial crisis of 2008 – 09, the subsequent worldwide recession and the bumpy recovery. first, i ’