as we move into 2007. canada had a sound financial system, but we still ran into trouble. during the summer, the more - than - $ 32 billion market for canadian non - bank asset - backed commercial paper ( abcp ) froze. companies that relied on this market for funding were hurt, along with investors, including some of quebec ’ s largest firms, which suddenly had no market for the paper. while there were some doubts about the assets behind the paper, the shortage of liquidity undoubtedly worsened the crisis and spread it to other markets. a lack of transparency about the assets and a poorly designed liquidity backstop didn ’ t help. ironically, even though some said that abcp was backed by just about anything, the underlying assets in the canadian d. w. diamond, and r. rajan, “ liquidity shortages and banking crises, ” journal of finance, 60, no. 2 ( 2005 ) : 615 – 47. bis central bankers ’ speeches paper ultimately turned out to be relatively sound, and the losses felt by the investors were largely the result of the market freeze. the affected companies, the provincial and federal governments, and the bank of canada worked hard to negotiate the montreal accord. this included a standstill agreement and rescheduling of payments, along with protection for smaller investors. i chose this example because we ’ re in montreal, but there are plenty more that show that liquidity can evaporate quickly for reasons that aren ’ t immediately obvious. 2 but it was clear in 2008 with bear stearns and lehman brothers that, when liquidity disappears, everybody can feel the consequences, and they are very expensive. 3 the fallout from the crisis because of credit and liquidity issues is estimated to have cost the global economy more than us $ 10 trillion in lost output. the response a lot has been done, both in canada and globally, to respond to the lessons taught by the crisis. the goal is to strengthen the world ’ s financial system so that it functions well, reducing the costs and chances of any future crisis. 4 it ’ s also to make sure taxpayers won ’ t be on the hook for the cost of any future turmoil. let me mention some of the most important reforms. internationally, policy - makers gathered at the basel committee on banking supervision to establish new regulatory standards. the basel iii package, as it ’ s called, is perhaps best known for its regulations that determine how much capital banks need to have, while taking into account

63. m. feroli, a. k. kashyap, k. l. schoenholtz, and h. s. shin, “ market tantrums and monetary policy, ” chicago booth research paper no. 14 – 09, 2014. morgan stanley and oliver wyman blue paper, wholesale & investment banking outlook, 19 march 2015. financial stability board and basel committee on banking supervision, “ assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements, ” final report of the macroeconomic assessment group, december 2010, available at http : / / www. bis. org / publ / othp12. pdf ; bank of canada, “ strengthening international capital and liquidity standards : a macroeconomic impact assessment for canada, ” special report, august 2010, available at http : / / www. bankofcanada. ca / wpcontent / uploads / 2010 / 09 / report. pdf. bis central bankers ’ speeches financial market operations and emergency lending policies. these two papers can be found on our website. 16 my colleague, deputy governor lynn patterson, will talk in detail about initiatives relating to the bank ’ s market operations in a speech in vancouver next week. let me walk you through the highlights, while stressing that you should infer nothing from these proposals for the current or future stance of monetary policy. first, the bank is proposing to reduce the amount of benchmark government bonds we buy at government bond auctions for our own balance sheet. this will help liquidity by increasing the amount of such newly issued securities that will be available to other buyers. for its part, the bank will buy some of the assets we need in the secondary market for government bonds. second, we are exploring changes to our securities - lending program. this would assist primary dealers that contribute to market liquidity but that need to borrow securities, while still encouraging the market to clear itself. finally, we intend to set up a regular program of term repo operations that will not only help us manage our balance sheet, but also give us timely insight about liquidity conditions in short - term funding markets. these steps will all help markets in normal times. but we need to be ready for when times aren ’ t so normal. we ’ re using this period of relative calm to sharpen our tools that could be used in any future periods of stress. during the crisis, the bank set up a temporary term repo facility that