see some evidence that people are borrowing from other sources to put together enough of a down payment to avoid the insurance requirement. this could be a concern, depending on the source of the borrowing. imbalances in housing markets, the second vulnerability, have also grown since december. policies aimed at cooling the greater vancouver area market appear to have had only a temporary effect, as sales and prices are rising again. similar policies have recently been implemented for the greater toronto area ( gta ). while the most recent average home sale price in the gta has declined, that followed significant price acceleration over the previous year, across dwelling types. there is a map in the fsr showing that large price increases are now being seen across the region, from niagara to peterborough. 1 / 2 bis central bankers'speeches we expect macroprudential and housing policy measures to help mitigate this vulnerability over time. and i would point out that housing market fundamentals remain very strong in the greater toronto and vancouver areas, with solid growth in population and employment. however, fundamentals alone cannot explain the price movements we have seen, and there is evidence that extrapolative expectations continue to play an important role. this is important because there is a greater chance of a correction when prices rise at a faster pace than fundamentals would imply. and where extrapolative expectations are at work, there is always a risk that expectations can turn quickly, amplifying the drop in prices. so, given the evolution of these two vulnerabilities, the bank looked at the most important risk scenarios for the canadian economy. specifically, we once again looked at a risk scenario where a severe recession triggers a correction in house prices. and we took a narrower look at a different risk scenario, where a house price correction in specific regional markets occurs on its own, rather than being caused by some external shock. under the first scenario, a severe recession would lead to widespread job losses and declining income, which would hurt highly indebted households in particular. the ensuing house price correction would worsen the impact of the recession, which could lead to widespread stress in the financial system and economy. the canadian economy has been strengthening in recent months, so the chance of this scenario happening is decreasing. however, its impact could now be more severe because the underlying vulnerabilities have grown. the second scenario we looked at involved a significant house price correction in the greater toronto and vancouver areas. such a correction would hit the british columbia and ontario

and in machinery and equipment during the 1990s may have raised production capacity. consequently, the bank will be putting more emphasis on, and carefully watching, a range of indicators to assess the degree of pressure on capacity and on inflation. the interpretation of developments on this front will be an important challenge for monetary policy in the period ahead, one that will require a great deal of careful analysis. the year 2000 changeover in the financial sector with the end of the millennium approaching, any review of near - term economic developments would be incomplete without a word on the efforts by financial sector participants and public sector agencies, including the bank of canada, to deal with the implications of the year 2000 date change. as part of its commitment to canadians, the bank seeks to promote the safety and soundness of our financial system. with this in mind, we have for some time now been working closely with various canadian and international organizations to minimize any effects on our financial sector as we head into the year 2000. today, i can tell you that the canadian financial sector has done its homework. it has been passing its year 2000 tests. and contingency plans have been made. so, at the dawn of the new year, the bank expects that it will be “ business as usual, ” but we will also be ready if anything unusual happens. efforts to identify and fix potential year 2000 problems in the canadian financial sector started early. and they have been exhaustive, with expenditures in the billions of dollars. operators of systems shared by the financial sector have made the necessary changes and fully tested them. for example, last june, the canadian payments association and its members participated in a global payments systems test to verify the ability of financial institutions around the world to send and receive international payments. domestic clearing and settlement systems have also been tested, as have all systems used by the markets for transactions involving canadian debt and other securities. they are ready to operate in a year 2000 environment. at the same time, virtually all individual financial institutions have completed and tested changes to their critical systems, including those that support automated banking machines, credit and debit cards, and telephone banking. and major canadian deposit - taking institutions have guaranteed the safety of their clients ’ accounts and records from any year 2000 computer - related disruptions. the bank of canada has given the same guarantee for canada savings bonds records. of course, the bank of canada ’ s own critical computer systems have also been reviewed, upgraded as necessary, and tested. and they are year 2000