money, there is less motivation for creditors to be careful with risk assessment when loans are made. and there is little motivation for early, serious discussions between a debtor and its creditors when problems begin to arise. in fact, the only serious motivation comes when the crisis is full - blown and official money runs out. clear limits would encourage better risk assessment, earlier negotiations, and conceivably, a quicker and more orderly resolution of the crisis. of course, one could eliminate official assistance altogether and leave debtors and creditors to work it all out on their own. but with no official lending, disorderly defaults could occur more frequently, resulting in unnecessary output losses and financial - system disruptions in the affected countries and elsewhere. over the past couple of years, the bank of canada and the bank of england together have developed a " middle ground " approach, designed to encourage private lenders to work closely with debtors to find timely, orderly solutions. in our joint work with the bank of england, we set out a framework for the resolution of international financial crises. this framework has three basic elements. first, official assistance should be limited, and the limits should be well known in advance. ( these limits are often referred to as the " presumptive limits. " ) the second key element of our approach is the possibility of exceptional official lending in the unlikely event that a crisis threatens global financial stability. but such lending would be based on explicit criteria and procedures. third, it is recognized that, under certain conditions, an orderly standstill ( that is, a temporary suspension of debt - service payments ) may be appropriate to give distressed debtors some time to take steps, including debt rescheduling, to address their problems. in addition, the framework encourages greater use of what is known as " collective - action clauses. " these clauses are intended to discourage " rogue " creditors from blocking or rejecting a reasonable offer for debt restructuring. such a framework, by providing greater clarity upfront about the size and terms of the official assistance available, allows debtors and creditors to form more realistic expectations. in so doing, it helps to prevent crises ; and, should they occur, it creates the right incentives for their timely resolution. in many international forums — imf, g - 20, g - 7 — canada has been working hard to encourage the adoption of such a framework. and last month, g - 7 finance ministers and central bank governors adopted an action plan that aims to address many

david dodge : international financial architecture and the resolution of financial crises speech by mr david dodge, governor of the bank of canada, to the canadian club of ottawa and the canadian institute of international affairs, ottawa, ontario, 14 may 2002. * * * i am pleased to be here today to talk about the bank of canada's contribution to international financial stability and the resolution of financial crises. the preamble to the bank of canada act calls on us to promote the economic and financial welfare of canada. in this context, we aim to foster good economic performance through monetary stability — that is to say, through low, stable, and predictable inflation. but no market economy can function properly unless it is also supported by an efficient and stable financial system. sound financial institutions, a robust infrastructure, and well - functioning financial markets are necessary to facilitate transactions and to properly channel savings into investments. this is true for canada's domestic economy. but in today's interconnected world, it is equally true for the global economy. recent experience has shown that world events can have serious repercussions on national financial markets, including ours, and indeed on our entire economy. the mexican crisis of 1994 – 95 and the asian and russian crises of 1997 – 98 are cases in point. in both instances, canada was sideswiped. and while the recent acute economic and social problems in argentina have not had a major economic impact beyond that country's borders, they have nevertheless had implications for canadian banks operating in, or holding claims on, argentina. so canadians have more than a passing interest in a healthy global financial environment. sound macroeconomic policies and sound financial systems across all countries are becoming even more important as the world becomes more and more integrated. the episodes of financial stress that the world has experienced in recent years have revealed weaknesses in the foundation of the international financial architecture. those problems have to be addressed, and the foundation fortified, if we want to reduce the incidence and the impact of global financial disturbances. in the aftermath of the crises of the late 1990s, the international community has acted to identify and to begin to deal with financial vulnerabilities. canadians have been actively involved in this work. and we at the bank of canada have played our part. the bank participates in several international forums where issues of financial stability are being debated. and we work closely with others to strengthen the international financial architecture by developing frameworks for the prevention, management, and resolution of crises. today, i would like