up for five years ago. as we go forward, people will increasingly face higher interest rates when they renew, and we will learn more about how people are adjusting. it is clear that many highly indebted households will face a difficult adjustment as their mortgages reset and interest rates go up. still, these adjustments will be far less demanding than if there were a serious negative economic shock, especially if financial vulnerabilities were allowed to continue to grow unchecked. now, the fact that household spending is behaving roughly as expected gives us more confidence that we understand what is happening in the economy. but borrowers and lenders are continuing to adjust to rising interest rates and the new mortgage rules. so, we are closely watching a number of trends in mortgage markets. for example, the share of mortgages that originate outside federal jurisdiction, including from private lenders and credit unions, is rising. these borrowers are not subject to a formal interest rate stress test. we have seen a rise in the share of mortgages issued by private lenders in the toronto area, although we do not have this type of data for cities outside of ontario. we have also seen a greater share of highly indebted borrowers taking out variable - rate mortgages. in doing so, they are lowering their debt - service burdens because, usually, the interest rate on a variable - rate mortgage is lower than on a fixed - rate mortgage. this frees up money for spending or saving in the short term, but exposes the borrowers to unexpected increases in interest rates down the road. that said, the stress test in place gives us confidence that these borrowers can manage significantly higher payments, if need be. in summary, while the quality of new lending has improved, the stock of risky mortgages remains high. over time, those mortgages should become less risky as they are slowly paid down. still, this vulnerability will persist for many years. closely related to the buildup of household debt are developments in housing markets. everybody is talking about this issue — which is no surprise when you see that house prices in the toronto area are close to 40 per cent higher than they were three years ago. in the vancouver area, the increase has been even larger — about 50 per cent. outside of those two areas, the average home price has increased just 5 per cent over the same three years. to be clear, fundamental factors have pushed up house prices in toronto and vancouver. strong

bailouts and sovereign credit risk ”, nber working paper no. 17136. bis central bankers ’ speeches discussion on how to reinforce common decision - making over fiscal policies and strengthen accountability arrangements. in other words, this could only take place in the context of a decisive step towards closer fiscal union. and to make that step we would need to first see a process of convergence in economic and financial policies in the ways i have described. conclusion this brings me to my conclusion. what i have argued today is that doubts over the viability of emu will only be fully removed when we have completed it in all relevant areas. this means banking and capital markets union ; it means economic and fiscal union. in a monetary union no policy area can be seen in isolation. each interacts with and affects the other. and as such, completing emu in all areas strengthens and underpins the others. monetary union is more effective in securing the fundamental interests of citizens when common interests are recognised as such ; and when the responsibilities that come with participating in a community are assumed in full. in other words, its ultimate success depends on the acknowledgment that sharing a single currency is political union, and following through with the consequences. and that requires commensurate accountability and transparency arrangements. all countries must benefit permanently from participation in monetary union. and this means that the requirements i have laid out cannot be met only at the time when a country joins the union, or for some of the time. they have to be met all the time. they have to be irrevocable features of participation in monetary union. and for that reason, the institutional arrangements that ensure those requirements are met must ultimately be binding in nature, and permanent in form. bis central bankers ’ speeches