" refers to the large and persistent current account deficit seen in the united states that is mirrored by current account surpluses in asia and many oil - exporting countries. these current - account imbalances have resulted from imbalances in global savings and investment. while the u. s. economy has seen very strong domestic consumption and negative savings in recent years, many other economies – particularly in asia and the opec nations – have seen too much saving and not enough domestic consumption. this global savings glut outside the united states has contributed to low long - term interest rates and to what some observers have called a " wall of liquidity " that has led to strong investment flows into many assets, and higher prices for these assets. as long as market participants have reason to believe that policy - makers will take appropriate actions, there is no reason to expect that these imbalances won't be unwound in a gradual and orderly way. indeed, this is what the bank's base - case assumes. so far, financial markets have handled these imbalances smoothly. this smooth handling of global imbalances has been helped by innovations in financial markets that have led to new ways to price and transfer risk. currently, there is little evidence to suggest that these risks are being distributed inappropriately across the global economy. but assessing such risks is very difficult. it requires the ability to conduct analysis at a global level and a real understanding of the interdependencies in the global economy. national authorities, here in canada and elsewhere, do their best to carry out this analysis. but this analysis can be greatly helped by an organization with global reach, and which is dedicated to looking at the global economy as a whole. this organization already exists – it is the international monetary fund. strengthening the international monetary fund in recent years, there have been some who have called into question the relevance of the imf. but at the bank of canada, we believe that the imf still has an important role to play. the danger posed by global imbalances shows that we need an international institution charged with supporting the smooth functioning of the global economy. now, it is true that the imf does need to change if it is to better carry out this task. at the bank of canada, we have spent a great deal of effort over the past year or so thinking about this topic. we believe that a strengthened imf can best support the global economy by improving the way it conducts surveillance.

##prudential policy. they fulfill their respective functions in monitoring risks and financial imbalances in the entire financial system. the bank regularly releases the financial system report, which analyzes and assesses the stability and functioning of the financial system as a whole. the bank began its release back in 2005, before the global financial crisis occurred. since then, this semiannual report has been released to convey the bank ’ s thinking on risks and issues facing japan ’ s entire financial system. through this release, the bank works to grasp risks in the financial system as a whole, and to share a common understanding with a wide range of participants in the system, including financial institutions. i think this process is fundamental to identifying financial imbalances at an early stage and implementing, with appropriate timing, measures that are considered to be effective in containing risks. in relation to the three issues i mentioned earlier, there are two key points. first, it is important to improve the quality of the assessment of financial developments so that macroprudential measures can be implemented with appropriate timing. second, it is also important to increase the scope of analysis to cover not only banks but also the entire financial system. bis central bankers ’ speeches from that viewpoint, the results of various analyses are set out in the financial system report. as an example, let me introduce the financial activity indexes ( faixs ) ( chart 3 ). the bank began their compilation in 2012. the faixs aim to detect, as early as possible, overheating in financial activity that could lead to systemic risk. they are a selection of 14 financial indicators, such as the total credit - to - gdp ratio and the land prices to gdp ratio, and measure how far individual indicators deviate from their historical trends. the financial system report provides overheating or overcooling assessments of individual indicators in a “ heat map ” format, where red shading shows that the indicator in question is tilted toward overheating, blue indicates overcooling, and green represents everything in between. through a comprehensive analysis and assessment of these indicators, the bank works to gauge the accumulation of macro financial imbalances. of course, the heat map is not perfect. let me offer the example of the total credit - to - gdp ratio, which is a typical indicator of the financial cycle ( chart 4 ). it is difficult to grasp the underlying trend of the ratio, given the overwhelming magnitude of the emergence and bursting of the asset