but if too many canadian households start to become dangerously over - leveraged, policy - makers have several macroprudential tools they can use. our experience with the mortgage - interest stress test shows how effective these tools can be. the bottom line is that the private and public sectors together need to be acutely aware of financial system risks and vulnerabilities as the economy recovers. gri has an important role to play in analyzing and highlighting these risks and keeping us focused on what may be coming down the road. risks from climate change finally, let me say a few words about a longer - term risk that is accelerating — the impact of climate change and the transition to a low - carbon economy. the financial system has a critical role to play to support the real economy through the transition and to help businesses and households manage new climate risks. to do this, the financial system has to both manage its own climate risks and help direct savings to productive and sustainable investment. physical and financial risks from more frequent and severe weather events, including damage to assets such as real estate and infrastructure, will almost certainly grow. many types of business also face significant transition risks related to the revaluation of assets and the reassessment of projected earnings and expenses. if not appropriately priced and managed, both types of risk have the potential to bring about significant losses for financial institutions and could even threaten the stability of our financial system. sound risk management starts with sound measurement. companies need reliable, consistent and comparable ways to measure and state their exposure to climate risks. financial institutions, too, must understand and be transparent about their exposures. investors are increasingly demanding this transparency. if we are going to do a better job assessing, pricing and managing climate risks, we need better and more decision - useful information that combines climate - data analysis with economic and financial information. this will make the financial system and the real economy more resilient. and it will strengthen the ability of the financial system to fulfill its most critical role, which is to allocate savings to its most productive uses. this will help canadians take advantage of sustainable investment opportunities. 4 / 5 bis central bankers'speeches as part of its responsibility to promote financial system stability, the bank is accelerating its work to understand the implications of climate change for the canadian economy and financial system. last year, we developed a multi - year research plan focused on climate - related risks. and we joined the network of central banks and supervisors for greening the financial

, its lowest possible level. once we reached that effective lower bound, we developed and published a framework for unconventional monetary policy. our conditional commitment is the only element of that framework that we have activated. while the bank ’ s unconventional policy framework demonstrated to canadians that we were not out of bullets, the use of the conditional commitment reassured them that we were not trigger happy but, rather, disciplined by the pursuit of our inflation target. action alone is not sufficient. it must take place within the proper context. once again, i stress that the bank places supreme importance on policy measures within a well - developed framework. the bank ’ s monetary policy response to the current crisis has been consistent with ben bernanke ’ s mea culpa to milton friedman and anna schwartz, regarding the lack of action by the federal reserve during the depression : “ you ’ re right, we did it. we ’ re very sorry. but thanks to you, we won ’ t do it again. ” bernanke ’ s admission underscores the importance of research and learning – something the bank has long understood. in - depth, comprehensive, and impartial research has always been critical to our success. one of the first steps taken by our first governor, graham towers, was to create a research and statistical department. 6 through aggressive recruitment of promising young academics and co - operation with university - based researchers and international colleagues, innovations have included leading macro models ( such as rdx and totem ), work on price - level targeting, and cutting - edge research on payments systems. 7 the bank has also learned from the conduct of policy, including from our mistakes. gerald bouey famously recognized that “ we did not abandon m1, m1 abandoned us, ” before initiating a search for a new monetary anchor. more recently, the bank has been determined not to repeat the errors of the 1970s, when we overestimated the rate of potential growth in the wake of a major global shock. 8 most significantly, the bank is now guided by the discipline of an inflation target. canada helped pioneer inflation targeting, having adopted it in 1991 under the governorship of john crow. 9 during the great recession, its value was clear. by disciplining our objectives and promoting transparency and accountability, the target has anchored inflation expectations, thereby ensuring that reductions in our overnight rate drive down real interest rates and stimulate the economy. financial system stability and the provision of liquidity consider now a second challenge that has echoed across