timothy lane : financial stability in one country? remarks by mr timothy lane, deputy governor of the bank of canada, to the weatherhead center for international affairs, harvard university, cambridge, massachusetts, 11 february 2013. * * * introduction during the years since the global financial crisis, financial reforms have been moving forward on two distinct levels. the g - 20 leaders ’ commitment to build a more stable and resilient global financial system is being advanced through an ambitious global reform agenda. at the same time, policy - makers in each country are implementing reforms intended to establish more stable and resilient systems in their respective jurisdictions. financial stability in each country is, of course, an essential ingredient of global financial stability : policies to achieve financial stability in different jurisdictions are in most cases highly complementary, as a stable global financial system is made up of stable national financial systems. but tensions do sometimes arise between these two objectives. at the root of these tensions is the pervasiveness of cross - border spillovers – both from the risks affecting financial stability and from some of the reforms designed to mitigate those risks. in canada – an open economy where the financial system is closely linked with those of the united states and other countries – we have a privileged vantage point on these issues. our experience during the global financial crisis and its aftermath is a reminder that financial stability at the national level cannot be fully secured in the face of economic and financial shocks originating elsewhere. financial instability speaks all languages and carries many passports. furthermore, financial reforms have important cross - border implications that need to be addressed to ensure that these reforms have their intended benefits. thus, financial stability is a shared responsibility that must be advanced through international cooperation. reforms agreed to at the global level need to be implemented fully and consistently in each jurisdiction. in my remarks today, i am going to draw on canada ’ s experience of the past few years to illustrate these points. first, i will review how canada fared during the financial crisis. second, i will discuss the risks to canada ’ s financial stability that have emerged in the wake of the crisis. third, i will focus on some important cross - border elements of the reform agenda. canada and the crisis it ’ s now well known that canada came through the financial crisis better than many other major advanced economies, with a relatively short and shallow recession and a relatively strong recovery. it is now over two years since canada regained its pre - recession level of both real gdp and employment ( chart 1 )

, supported by firm commodity prices, high employment levels, and the effect of the cumulative easing in monetary policy. we at the bank project that the canadian economy will grow by 1. 4 per cent this year, 2. 4 per cent in 2009, and 3. 3 per cent in 2010. the emergence of excess supply in the economy should keep inflation below 2 per cent through 2009. both core and total inflation are projected to move up to 2 per cent in 2010 as the economy moves back into balance. there are both upside and downside risks to the bank's new projection for inflation ; these risks appear to be balanced. in line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. given the cumulative reduction in the target for the overnight rate of 150 basis points since december, including the 50 - basis - point reduction announced last week, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in canada. with that, paul and i would now be pleased to answer your questions.