david dodge : canada ’ s experiences of the past few decades speech by mr david dodge, governor of the bank of canada, to the spruce meadows roundtable, spruce meadows, alberta, 5 september 2003. * * * thanks to my colleagues from around the world for giving such a comprehensive review of the vital issues facing the global economy. one of the hazards of speaking last in these kinds of sessions is that those who speak before you may cover all the interesting territory, leaving you with the unenviable task of trying to tie everything together. in this case, however, going last is not so bad. that ’ s because, in order to tie together the issues discussed so far, we need to take a global view of the economy. and as far as canada is concerned, taking a global view has always been important. of course, every country is affected to some extent by what happens in the world economy. but canada, with its very open economy, has a particular need to keep an eye on the changing fortunes of the international scene. canada ’ s reliance on foreign trade has required us to be active internationalists for decades. louis rasminsky, who went on to become governor of the bank of canada, was one of canada ’ s delegates at the bretton woods conference that led to the creation of the international monetary fund ( imf ) and the world bank. rasminsky played an important role, formal and informal, at the talks. not only was he the chair of the drafting committee, he was also the peacemaker between the british delegation, led by john maynard keynes, and the u. s. delegation, led by treasury secretary harry dexter white. in the months leading up to bretton woods, it was rasminsky who kept the two key delegations talking. without his work, both as a skilled drafter and as a go - between, it ’ s entirely possible that the talks at bretton woods could have ended in failure. canada was also present at the 1947 havana conference, where we pushed for the establishment of an international trade organization. this was meant to be a body parallel to the imf, designed to establish and monitor a set of global trade rules. we didn ’ t get quite what we wanted, but the result was still certainly positive : the birth of the general agreement on tariffs and trade ( gatt ). in 1995, nearly five decades later, we were more successful, as we pushed the effort to turn the gatt into

initiatives. of course intensified regulation will come at a cost. for banks, profits will go down. generating double digit profits will become an unrealistic target if the underlying real economy the bank is servicing does not generate such high profits either. for customers, it means that financial products and services will become more expensive. and investors will come to realize that investing in a bank is a long - term undertaking, rather than a quick and easy way to make money. intensified regulation will also make some business models less appealing. but let us not forget that those are exactly the business models we are worried about. funding an extremely long - maturity asset portfolio with very short - term paper used to be quite common for a while for many larger banks in developed economies. but this is undesirable. however, understandably, many are worried that this intensified regulation will hurt msme financing. msmes are generally treated either as corporate or as retail clients. if they are treated as corporates, msme loans may in some cases be considered riskier than loans to bis central bankers ’ speeches large corporates. such as when the msme loan is provided in a country with a high sovereign risk. an ecb study published last week1 showed that access to bank loans in the euro area, including msme loans, was becoming slightly more difficult. moreover, the survey pointed to somewhat higher rejection rates for loan applications. meanwhile, the percentage of respondents reporting access to finance as their main problem remained broadly unchanged. the demand for external financing showed even a slight decline. i think that regulators and supervisors must continuously evaluate how risky banking activities really are. this is a learning process. if by evidence it turns out that some activities are less risky than initially considered, we should consider treating such activities more favorably. for instance, through lowering risk weights. if they turn out to be riskier, we should treat them with more caution, whatever the activity concerned, msme loans included. to me this is the proper approach to making sure banks are sound and the financial system stable. i think, though, that msme lending will ultimately not be disproportionately affected. let me explain this : first of all, all new regulation will be phased in only gradually. for some measures even over a period of up to 10 years. this should give banks, investors and customers, including msmes, sufficient time to adapt to the new requirements. in addition, this gradual phasing in will also allow the