segments of the home loan market that have raised the most concern, taking into consideration the cost and burden of reporting. the thresholds generally correspond to an unofficial line separating the prime and subprime markets. but that line of separation is not always clear, and its correspondence with the reporting thresholds is in any event imprecise. therefore, we call loans whose prices exceed the reporting threshold " higher - priced loans " rather than " subprime loans. " this is only the second year in which price data will be publicly available under the board ’ s regulation. the board continues to monitor the effects of the regulation in an effort to understand both its benefits and costs. the federal reserve ’ s use of hmda data in fair lending supervision i have spoken of the federal reserve ’ s role as the agency charged with implementing hmda through regulations. the federal reserve also has a role as a supervisor of bank holding companies and state - chartered banks that are members of the federal reserve system. in that role, the federal reserve has long used hmda data to help it supervise financial institutions ’ compliance with fair lending laws. the new data on higher - priced loans are yet another " screen " to make our fair lending supervision more effective. the federal reserve also shared analyses of the 2004 price data with other supervisory and enforcement agencies to assist them with their oversight of the institutions they supervise. before i discuss how the hmda screen fits into the process of fair lending supervision, i want to describe that process more generally. fair lending reviews are an integral part of the federal reserve ’ s supervision for consumer compliance and are performed regularly within each examination cycle. in addition, examiners may conduct targeted fair lending reviews whenever circumstances warrant. moreover, the federal reserve examines institutions ’ compliance with fair lending laws regardless of whether they report price data under hmda. indeed, the federal reserve was examining for potential price discrimination well before it adopted the hmda price - reporting requirement. although price reporting under hmda is limited to higher - priced loans, examiners look for unlawful price discrimination at any pricing level. furthermore, examiners seek to detect other forms of discrimination, such as underwriting discrimination ( for example, denying credit on the basis of the applicant ’ s race ) or redlining ( for example, denying credit on the basis of the racial characteristics of the applicant ’ s neighborhood ). federal reserve examiners use an institution ’ s hmda data, including its accept - deny data for loan applications and any price data it

while this indicator does an excellent job of measuring stress in real time, our objective is to develop empirical measures that could forewarn of potential financial crises. in other words, given that the fsi accurately measures financial stress, what accurately predicts changes in the fsi? it has been clear for some time that rapid growth in credit and sustained growth in asset prices often precede financial crises. bank researchers have found a promising tool for assessing canada's vulnerability to crisis : a combination of growth in domestic business credit and real estate prices that tends to be a good predictor of changes to the bank's financial stress indicator one to two years in the future. however, this combination was unable to predict the current crisis because the root causes came from outside canada. there is ongoing work at the bank to refine these tools, which could prove important, not m. misina, p. st - amant, and g. tkacz, " credit, asset prices, and financial stress in canada ", financial system review ( ottawa : bank of canada, december 2008 ) : 29 - 33. m. illing and y. liu, " an index of financial stress for canada " ( working paper no. 2003 - 14, bank of canada, 2003 ). only for predicting future periods of financial instability and thereby prompting timely corrective actions, but also for the development of countercyclical capital rules that i will discuss in a few minutes. current risks to stability in the fsr, five major risks to financial stability were identified : first, the liquidity and funding of financial institutions ; second, their capital adequacy ; third, the state of household balance sheets ; fourth, the possibility of a more prolonged downturn in the global economy ; and fifth, the threat of a destabilizing unwinding of global financial imbalances. let me now spend a few minutes discussing the first three of these risks in some detail, although i should stress that these are risks, and not the most likely outcomes. funding and liquidity the current crisis began in the summer of 2007 as liquidity dried up, leading to major disruptions in money and bond markets. in response, the bank of canada provided exceptional liquidity to core financial institutions, with the expectation that this liquidity would cascade through the financial system. this was indeed the case this past spring. with the intensification of the crisis since september, our liquidity efforts have been significantly expanded. while