transparency. the economic benefits of establishing trust during the 1970s and 1980s, the bank of canada had ample experience with operating in an environment where canadians had significantly less confidence in the bank ’ s ability to safeguard the domestic value of the currency. inflation was choppy and unpredictable, and the bank of canada was struggling to come up with an appropriate anchor for monetary policy. however, in recent years, canadians have gained confidence that we will keep inflation low, stable, and predictable, thanks to our system of explicit inflation targets and our success in meeting them. this trust can be thought of as a kind of social capital — a shared asset that benefits everyone, including the central bank. this capital is very valuable and must not be squandered. what does this have to do with efficiency? quite a bit. if you think back to the 1970s and 1980s, people spent a great deal of time and effort trying to hedge against inflation. resources that should have been put to more productive uses were spent devising ways to protect the value of savings. then, in 1991, the government of canada and the bank agreed on a system of explicit inflationcontrol targets. as you may know, under the current agreement our target is the 2 per cent midpoint of a 1 to 3 per cent band for the total consumer price index. since we adopted this inflation - control system we have been consistently successful in meeting the target. as a result, inflation expectations have fallen in line with the target and are now well anchored, not just for the near term, but well into the future. with this trust in place, this social capital earned, the list of economic benefits for canada is long indeed. less time, energy, and money is being spent on protecting oneself against inflation. labour and financial contracts have lengthened, while the amount of time lost to strikes and lockouts has dropped. what is more, the dynamics of the inflation process have been changed, to the point that inflation itself has become much more stable and predictable. inflation expectations are less vulnerable to swings in the external value of the canadian dollar, and to changes in key energy prices. all this allows the bank to conduct monetary policy more easily. and it allows financial markets and businesses to operate more efficiently. of course, the economy has also undergone a number of other necessary changes, including a massive restructuring of the private sector and a restoration of fiscal health. together, these changes have led to better economic performance. transparency supports the system before i move on

one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him. ” any regulatory ratio is structured on the basis of the definitions of what should eligible for calculation purposes, both in the ratio ’ s numerator and denominator, and of the level it should reach. the new regulations have changed these three elements of the ratio : ( i ) the numerator shows a figure for capital calculated in keeping with a new, much more demanding definition ; ( ii ) the way in which risks are translated into weighted assets has been changed in the denominator and various caveats have been added regarding the use of internal models ; and finally, ( iii ) the required ratio level has been raised considerably, and additional " buffers " have been added, inter alia, to cover the risks systemic institutions evidence. 7 / 13 while the capital ratio is important, it is not by any means the only significant measure. the crisis has shown that focusing solely on one metric may be counter - productive. thus, other elements have been added. these complement the classic solvency metric, and relate to banks ’ liquidity or leverage. moreover, the focus has been placed on banks ’ business model and governance. lastly, specific remunerative arrangements have also played a significant role in encouraging short - termist behaviour. one rather controversial novelty, especially in investment banks, has been to introduce ceilings on and restrictions to credit institutions ’ remunerative policies, the aim being to correct or, at least, mitigate certain perverse incentives. supervisory changes yet despite all these regulatory changes, we must be aware that no rules can stand in for proper supervision. the role of supervision remains essentially the same : it is preventive. it is usually said that july and august forest fires are controlled and extinguished in the preceding months of march and april. at this earlier time, scrub is cleared and firewalls are set in place, enabling the future advance of the flames to be controlled. if the homework is not done in the spring, we pay the consequences in the summer. likewise, the fundamental role of the supervisor is to prevent. this means ensuring that, during upturns in the economy, the lending granted by banks has been correctly analysed and its price set so that the risks assumed are covered. that prevents excessive growth in lending that may lead to bubbles emerging. sadly