mark carney : opening statement for appearance before the house of commons standing committee on finance opening statement by mr mark carney, governor of the bank of canada, presented to the house of commons standing committee on finance, ottawa, ontario, 1 november 2011. * * * good morning. tiff and i are pleased to be here with you today to discuss the october monetary policy report, which the bank published last week. the global economy has slowed markedly as several downside risks to the projection outlined in the bank ’ s july mpr have been realized. volatility has increased and there has been a generalized retrenchment from risk - taking across markets. the combination of ongoing deleveraging by banks and households, increased fiscal austerity and declining confidence is expected to restrain growth across the advanced economies. the bank now expects that the euro area – where these dynamics are most acute – will experience a brief recession. the bank ’ s base - case scenario nonetheless assumes that the euro - area crisis will be contained, although this assumption is clearly subject to downside risks. we welcome the agreement announced last week by euro area leaders on a comprehensive plan to address the ongoing challenges in europe. we look forward to additional details on modalities of the various measures and to their implementation in the coming weeks. in the united states, real gdp growth is expected to be weak through the first half of 2012, reflecting diminished household confidence, tighter financial conditions and increased fiscal drag. growth in china and other emerging - market economies is projected to moderate to a more sustainable pace. these developments, combined with recent declines in commodity prices, are expected to dampen global inflationary pressures. the outlook for the canadian economy has weakened since july, with the significantly less - favourable external environment affecting canada through financial, confidence and trade channels. although canadian growth rebounded in the third quarter with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year. household expenditures are projected to grow relatively modestly as lower commodity prices and heightened volatility in financial markets weigh on the incomes, wealth and confidence of canadian households. business fixed investment is still expected to grow solidly in response to very stimulative financial conditions and heightened competitive pressures, although it will be dampened by the weaker and more uncertain global economic environment. net exports are expected to remain a source of weakness, owing to sluggish foreign demand and ongoing competitiveness challenges, including the

- 20 reform agenda : building robust financial market infrastructure. that infrastructure includes a number of components : payment and securities settlement systems, trading venues and exchanges, information and price providers, and collateral management systems. for the most part, these key elements not only functioned well during the crisis, they were in fact a source of strength. just after the onset of the crisis, the cls bank, which settles foreign exchange transactions, successfully processed roughly three times its normal daily volume of transactions ; and cdsx, which clears and settles trades in canadian - dollar - denominated debt securities, handled double its normal volume. efficient clearing and settlement systems such as these were able to perform a stabilizing role during the crisis. that is exactly what they were intended to do. the crisis did, however, illuminate some key areas in which financial market infrastructure needed to be broadened and put to better use. here, i am talking about expanding the use of central counterparties or ccps to replace bilateral clearing and settlement for a number of core markets. in my presentation today i am going to review how bilateral clearing contributed to contagion during the financial crisis, describe why greater use of resilient bis central bankers ’ speeches financial infrastructure is needed and tell you how ccps will strengthen the financial system. ccps are of particular interest to us at the bank of canada because we are responsible for overseeing systemically important financial infrastructure that affects the stability of the canadian financial system and, therefore, the health of the economy. what happens when robust market infrastructure is not in place? during the crisis, we had two stark illustrations of why greater use of financial infrastructure is needed. the crisis did not start or end with the following shortcomings in bilateral clearing and settlement, but they were channels through which problems in an obscure part of the u. s. housing market cascaded into a global crisis. although these are familiar stories, they illustrate the need for change. one instance is the near - failure of bear stearns. bear stearns wasn ’ t one of the largest investment banks in the united states, but it was one of the most leveraged, with large broker - dealer and proprietary operations. it played a pivotal role in the global repo market, holding collateral for transactions and acting as a counterparty for repo financing. when the firm ’ s mounting losses, extensive leverage and reliance on potentially unstable short - term funding markets threatened to cause its failure, there was a risk that bear ste