iii, the minimum amount of capital that banks must hold has increased by about five times. the largest, most complex firms must hold even more. 8 finally, deleveraging also reflects the shrinking of the shadow banking system – the complex web of securitized products, non - bank financial institutions, funding markets and other markets that created large amounts of leverage in some countries in the years preceding the crisis. on the whole, this deleveraging is a welcome correction – both by financial institutions and the regulatory authorities – to the excessive leverage that had built up in the global financial system before the crisis. as this process is completed, it should result in a more resilient global financial system. but it is also protracted and painful, with pervasive effects on the r. alquist and o. gervais, “ the role of financial speculation in driving the price of crude oil, ” discussion paper no. 2011 - 6, bank of canada, 2011. see also : report of the g - 20 study group on commodities, under the chairmanship of hiroshi nakaso, trade finance experts groups ( november 2011 ). a 2009 report by iosco also called for greater transparency in commodities markets, in part with a view to reducing the risk of market manipulation. see “ task force report on commodity futures markets : report to the g - 20, ” technical committee of the international organization of securities commissions, march 2009. m. carney, “ growth in the age of deleveraging, ” speech to the empire club of canada / canadian club of toronto, toronto, ontario, 12 december 2011. t. macklem, “ raising the house of reform, ” speech to the rotman institute for international business, toronto, ontario, 7 february 2012. bis central bankers ’ speeches global financial system and economy. indeed, deleveraging by financial institutions as well as by households and governments is the main force that is keeping the global economy on its current path of gradual and unbalanced growth. how has this deleveraging affected commodities trading? banks have been pulling back from the commodities sector, both in terms of their lending to commodities traders and their own market - making and proprietary trading activities. until recently, european banks provided up to 80 per cent of the financing for the trading of commodities worldwide. but, as those banks have had to repair their balance sheets, they have scaled back their lending, bringing their share down to about 50 per cent. to some extent, u.

prices in different parts of the global commodities market diverge, canadians may not reap the full benefits of their natural resources. commodity prices i ’ ve stressed that arbitrage and market - making are critical to tying global commodities markets together. these activities provide significant liquidity to commodities markets and, when they work properly, they also help bring commodity prices into line with the fundamentals of supply and demand – by which i mean, not just current supply and demand, but expectations of how supply and demand will evolve in the future. there is strong evidence that broad movements in commodity prices over the longer term indeed reflect these fundamentals at a global level. beginning in the 1990s, the robust resource - intensive growth of emerging market economies ( emes ) has propelled commodity markets into a supercycle. the number of people living in cities in china and india has risen by roughly 500 million since 1990. in parallel, the global middle class has been growing by 70 million people each year. these trends are widely expected to continue, with profound ramifications for a broad range of commodities. 4 of course, there have been significant variations around the upward trend in commodity prices. on average, commodity prices have declined over the past year, as the growth in emerging - market economies has been moderating. nonetheless, commodity prices as a whole are still about 25 per cent above their historical averages in real terms. in particular, real prices for energy and metals have been well above their long - term averages for more world oil price refers to the price of brent crude. m. carney, “ dutch disease, ” speech to the spruce meadows round table, calgary, alberta, 7 september 2012. bis central bankers ’ speeches than seven years now, and real food prices are now at their highest level in 35 years ( chart 1 ). financing commodities trading i have stressed the role of commodities markets – and in particular market - making and arbitrage – in tying together the global markets and bringing prices into line with fundamentals. these activities inevitably require financing – and the form of that financing has changed considerably over the past couple of decades. i would like to talk now about how that financing has changed and discuss the implications for the commodities markets and the financial system. there have been two countervailing trends : a strengthening of the links between the financial system and commodities markets during the decade or so before the 2008 global financial crisis, and an element of retrenchment and restructuring since then. let me describe each of those