if fund managers were to suddenly shift their asset allocations, the moves could spark a sharp reversal in portfolio debt flows. the business models of investment funds could further amplify the resulting stresses. for instance, the liquidity of etf shares is widely thought to be higher than that of the underlying assets. 11 in a stress situation, herd behaviour among etf investors could amplify changes in asset prices and lead to widespread contagion. what will help keep us on track? all of this is pretty sobering. but let ’ s remind ourselves what is in place to help keep us on track. first, the global financial system is more resilient than it was 10 years ago. under the basel iii reforms, institutions that are active globally — including canadian banks — are better capitalized. we shouldn ’ t underestimate the importance of this. these institutions are holding over us $ 2 trillion more capital than they were at the beginning of 2011 when the reforms started to be phased in. they ’ re also holding more liquid assets and running their businesses with less leverage. it ’ s critical to be well prepared for rainy days. in fact, in december, canada ’ s office of the superintendent of financial institutions ( osfi ) increased the capital buffer requirement for canadian banks by 25 basis points, to 1. 75 per cent of total risk - weighted 3 / 6 bis central bankers'speeches assets. 12 stress tests of the canadian banks are a useful way to assess how much pressure could be placed on their capital in very tough but plausible scenarios. last autumn, we published results from a hypothetical scenario that involved falling house prices. the exercise showed that our banks could handle such a shock. 13 we ’ ll show more of this kind of work in the next financial system review, to be published in may. osfi ’ s b - 20 mortgage underwriting guidelines are also adding to resilience. the guidelines have improved the quality of new lending by limiting the number of new mortgage holders that are highly indebted. along with higher interest rates, the new guidelines have also limited growth in credit. as a result, we ’ re finally seeing the ratio of household debt to income stabilize. second, china is deleveraging, which is critical for its economy and for the world. china has taken meaningful action, including more stringent regulation and supervision of the financial sector. this strategy has helped to slow credit growth. it ’ s also shrinking certain parts of the non - bank

pave the way for higher global growth and a more sustainable debt burden. conclusion it ’ s time for me to conclude. global debt is now more than three times global gdp. that is a headwind to growth and makes us vulnerable to another period of financial instability. the good news for canadian businesses and households is that the financial system — globally and here at home — is safer than it was a decade ago thanks to much stronger safeguards. and, the global expansion is expected to continue even though it has slowed in recent quarters. for canada, the economy is likely to be weaker in the first half of this year than we had forecast in january, but we still expect gdp growth to pick up later in the year. that said, more needs to be done to further reduce the downside risks. a long - lasting resolution to the current trade war is at the top of my list because the conflict is threatening growth around the world right now. credible fiscal and monetary policies, and nimble financial system safeguards, are at the core of limiting vulnerabilities and promoting longer - term resilience for all countries. what ’ s at stake is the future prosperity of many people, at a time when stability is sorely needed. 5 / 6 bis central bankers'speeches i would like to thank rhys mendes, gitanjali kumar and grahame johnson for their help in preparing this speech. 1 see the institute of international finance ’ s latest global debt monitor ( january 2019 ). 2 abundant global savings and factors such as population aging have contributed to lower “ neutral ” interest rates in advanced economies, including canada. for more detail, see x. s. chen and j. dorich, “ the neutral rate in canada : 2018 estimates, ” bank of canada staff analytical note no. 2018 – 22 ( july 2018 ). this is in part because emerging - market economies have less developed financial systems that may not be able to generate enough financial assets to absorb domestic savings, so capital flows from these countries into others where the financial systems are more advanced. see e. g. mendoza, v. quadrini and j. - v. rios - rull, “ financial integration, financial deepness and global imbalances, ” journal of political economy 117, no. 3 ( june 2009 ) : 371 – 410. 3 see m. carney, “ growth in the age of deleveraging ” ( remarks to the empire club of canada and the canadian club of toronto,