reviews, six reviews have now been completed and published. building a new system of international peer review is a major accomplishment. but heavier lifting lies ahead. as new, higher standards come into force, ensuring equivalent implementation will become increasingly important. three critical areas stand out : basel iii, resolution regimes and central clearing for otc derivatives. we will need rigorous and effective assessment of implementation across all jurisdictions to ensure that they are living up to their commitments. the goal is to create a race to the top in national adherence to international standards. agreement on these three elements – higher standards, new tools and strengthened enforcement mechanisms – will substantially enhance financial stability at the core of the system. agreement in these areas has been hard. but the truly tough work of consistent, rigorous and relentless implementation is just beginning. now that we have largely agreed on the reforms to reduce the likelihood of failure at the core of the system, the reform agenda is turning appropriately to two further priorities : expanding the perimeter of oversight and regulation, and reducing contagion and harmful international spillovers. expanding the perimeter of supervision and regulation the existing prudential regulatory framework was designed around banks whose credit - intermediation activities are closely regulated and supervised, as well as backstopped with deposit insurance and central bank liquidity. by contrast, the shadow banking sector is less regulated and does not have access to public liquidity support. however, like the bis central bankers ’ speeches credit - intermediation activities of banks, shadow banking also involves liquidity and maturity transformation, and often with some degree of leverage. the label “ shadow banking ” is unfortunate. it is not shadowy. market - based financing, as it is more appropriately called, provides competition for the banking sector and is an important source of innovation and diversification. and it is also big. in the united states, market - based financing was roughly twice as large as traditional bank intermediation at the peak of the credit boom and is still about 25 per cent larger today. in several other advanced economies, including canada, the sector is at least as large as the banking sector. the crisis highlighted the systemic vulnerabilities market - based financing can pose. the opaque and excessively levered securitization of u. s. mortgages, combined with undue reliance on short - term wholesale funding, greatly intensified the consequences of the u. s. housing collapse. with the capital and liquidity standards applied to banks set to increase, we can expect to see further

a significant strengthening of the global rules. the combination of greater emphasis on true loss - bearing capital – namely tangible common equity – and increased minimum capital levels has effectively raised the minimum global capital requirement seven times. moreover, for the largest and most interconnected global banks, this is being supplemented with additional loss - absorbing capacity. the group of governors and heads of supervision just agreed on a proposed methodology for assessing systemic importance, the amount of additional required capital, and the timeline over which this will be phased in. these additional measures will further strengthen the resilience of global systemically important banks and create incentives for them to reduce their systemic importance over time. bis central bankers ’ speeches tools the crisis taught us that while regulating on an institution - by - institution basis is important, it is not enough. the risk to the financial system is not equivalent to the average risk to individual firms. this was strikingly illustrated in the crisis, as it was individual institutions ’ attempts at self - preservation that transmitted and amplified stresses throughout the global system. addressing system - wide risks requires new tools, and here, too, there has been considerable progress. the countercyclical capital buffer included in basel iii is a giant step forward. the bank of canada played an important role in the development of the buffer, which provides for additional capital to be built up during periods of excessive credit growth in anticipation of a future downturn. this broad macroprudential instrument complements other tools designed to contain financial imbalances in specific markets. these include mortgage loan - to - value ratios and amortization periods, as well as countercyclical margin requirements. what remains is much work on implementation. in particular, how best to combine, sequence and implement these tools, how they will affect financial intermediation, and their implications for other policy instruments, including monetary policy. enforcement new rules are only as good as their application and adherence. last year in seoul, g - 20 leaders endorsed recommendations to strengthen the mandate, capacity and resourcing of supervisors. they also reviewed the powers required to monitor, identify and address excessive risk - taking, including early intervention. it is imperative that these recommendations are now translated into new standards for supervision and implemented on the ground. international assessment and review are also being strengthened. financial stability board ( fsb ) member jurisdictions are living up to their commitments to undergo regular assessments under the imf ’ s financial sector assessment program. and under the fsb ’ s new system of international peer