, of course, goes hand in hand with regulation. in short, this is a contract. all contracts function best when the two parties live not just by the letter, but by the spirit underlying the agreement. i ’ ve asked you to imagine some possible financial futures ; now, can you imagine one where regulated financial players uphold not just the letter, but the spirit of the new global regulatory framework? what i am suggesting is that the industry be at the vanguard of positive change, and voluntarily embrace the spirit of financial regulation. use this positive response as a brand to rebuild trust in the street, especially main street. and, in the process, demonstrate the effectiveness of principles - based financial regulation that allows competition and innovation to facilitate economic growth. conclusion let me wrap up. financial regulation is costly, but that cost pales compared with the fallout from the financial crisis. we are still paying for that. global regulatory reform was absolutely essential. so let ’ s work together to make it better. thankfully, the balance between regulation and innovation is dynamic, not static – competitive forces ensure this. we are at a critical juncture for the global economy. we have been through a destructive business cycle, and policies will need to remain stimulative until the legacy headwinds subside and the rebuilding phase truly gets underway. that rebuilding phase will require a substantial pickup in new firm creation and young firm survival, in particular, which will foster new job creation. creative financial intermediation is a necessary ingredient for this rebuilding process. in canada, we had a less difficult cycle than most other countries, in part because of the resilience of our financial system. even so, we saw significant destruction in our export sector, the backbone of our economy. we have been waiting for a resumption of export growth, to be followed by a rekindling of animal spirits, investment in new capacity and new firm and new job creation, and it looks like that natural sequence may have finally begun. we have plenty of room to grow, however, so it will take another couple of years before our economy can enjoy steady, natural growth with inflation sustainably on target. it is this return to natural growth that we all want to see. but it simply will not happen without vigorous and innovative financial intermediation. we need to embrace our new regulatory architecture and get on with the job. bis central bankers ’ speeches

is a sensitive social and political issue and can contribute to protectionist pressures, especially during periods of relative economic weakness. but as we consider the impact of increased competition from asia, it is important to remember that economic growth in asia is lifting hundreds of millions of people out of poverty. that ’ s an absolute good. and it is a new source of opportunity, creating more demand for goods and services from the industrialized countries and thus providing a boost to global economic growth. healthy financial systems as our economies have become more open, we have also been reminded of the importance of a solid, efficient financial system. in any country, growing firms need access to credit from a sound, wellfunctioning financial sector, including a healthy banking sector. countries with strong financial systems are much less likely to trigger or to amplify international financial crises than countries where those systems are weak. with the increasing integration of world markets, it is in everyone ’ s interest to promote efforts to limit the impact and the spread of financial shocks. since the asian and russian financial crises of 1997 - 98, countries have worked to improve the transparency and reliability of their domestic financial systems. mexico, for example, has made tremendous efforts to improve the health of its banking sector, partly by drawing on the sound business practices of large banks from other countries, including canada. in some countries, however, progress is less evident. and in china, the building of a strong commercial banking sector presents an enormous challenge. but it is not just domestic financial systems that need to be strong and flexible. as the global economic environment evolves, it is important that international financial institutions adjust in response. that is why institutions such as the international monetary fund and the world bank must continue to modernize themselves, to remain relevant in a changing world. while the imf and the world bank have evolved somewhat since their creation in 1944, they have changed much less than the global economy they oversee. so it is encouraging that a strategic review of their mandates and operations has begun. this review is a first step towards a much - needed updating of these institutions. commodity price adjustments i ’ ve spent some time outlining some of the structural forces at work in the world economy. now i ’ d like to talk about some of the adjustments that are being made following the recent sharp rise in global demand. the first adjustment is to higher commodity prices. the rapid growth of some emerging - market economies and the strong recovery in the united states are fuelling demand for