insolvency. in this context, higher capital requirements mean both, a higher quantity of capital as well as a higher quality. particularly, the minimum core capital requirements will rise from currently 2 % to then 4. 5 %, plus an extra 2. 5 % that will be introduced in stages from 2016 on. tier 1 capital requirements will increase from currently 4 % to then 8. 5 %. furthermore, a stricter definition of core capital is to be implemented. yet, this first line of defence is not sufficient and needs to be supplemented. in market - based economies the failure of individual enterprises, including banks, should not be ruled out a priori. thus, a second line of defence will be drawn, on the macroprudential level, which will only come into play if an institution breaks the first line of defence and becomes insolvent. its aim will be to curtail the impact of individual insolvencies on the financial system as a whole and to increase the financial system ’ s transparency. the european union only recently established an institution for macroprudential analysis and monitoring in order to recognise systemic risks early on, the european systemic risk board ( esrb ). germany passed a law on the restructuring of insolvent financial institutions last autumn, which is certainly a step to be welcomed. however, the various national restructuring mechanisms will only be fully effective if they are mutually compatible. as in other areas of regulation, this requires an internationally coordinated approach. additionally, measures of macroprudential oversight are currently being developed and implemented also to address systemic risk. dealing with systemic risk is complex and requires a multi - faceted approach. it should encompass systemically relevant financial institutions, markets and infrastructures, while transparency is crucial. topics that either still need further discussion or at least ratification include, for example, the question of how exactly to deal with institutions that are “ too big to fail ”. stricter regulation and more intense supervision lead, not least, to the internalisation of otherwise negative external effects of these institutions. the improvement of corporate governance, not least the implementation of the fsb ’ s international compensation standards, is also the subject of debate. further topics on the agenda are the mandatory registration of institutions that currently operate in the shadow banking system, and the standardisation of contracts and handling of derivatives. all these topics need to be concretised further. once implemented, these measures will have a profound impact on the financial system. they will increase

stephen s poloz : opening statement before the house of commons standing committee on finance opening statement by mr stephen s poloz, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 30 october 2018. * * * good afternoon, mr. chairman and committee members. senior deputy governor wilkins and i are pleased to be with you today to discuss the bank ’ s monetary policy report. at the time of our last appearance in april, our message was about the considerable economic progress that we had seen. we explained that after a lacklustre start to 2018, growth would rebound in the second quarter, coming in at around a 2 per cent pace for the rest of the year. we also said inflation would stay somewhat above our 2 per cent target this year, boosted by temporary factors whose impact would unwind over time, returning inflation to target in 2019. six months later, we have seen some very positive developments. the canadian economy has solid momentum and continues to operate near its capacity. growth is relatively broad - based across sectors and regions and it is more balanced, as the composition of demand shifts toward business investment and exports and away from consumption and housing. the economy will grow at a rate slightly above its potential over the projection horizon, supported by both foreign and domestic demand and favourable financial conditions. meanwhile, inflation is close to target after running a little higher than we expected in july and august due in large part to changes in the way statistics canada measures airfares. while there could be further volatility in inflation in coming months, our core measures remain firmly around 2 per cent. of course, the outlook remains subject to important risks and uncertainties. let me highlight two issues : trade and household indebtedness. in april we said the most significant risk to our inflation outlook was the prospect of a large shift toward protectionist trade policies around the globe. we also reminded members that our forecast included the negative effect of increased uncertainty on the export and investment plans of companies. naturally, we spent a considerable amount of time ahead of last week ’ s interest rate decision discussing the implications of the recent us – mexico – canada trade agreement ( usmca ). the usmca is good news because it will reduce a considerable source of uncertainty that has been holding back business investment. we know from our latest business survey, completed before the agreement was reached, that investment plans were already quite positive, as firms looked to take advantage of a strong us