december and it has been reported that progress is being made in the negotiations to convert short - term paper into medium - term tradable financial instruments. although some dislocation continues, it appears that the financial system has thus far weathered the turbulence reasonably well. canadian and global banks have had large enough capital cushions to withstand the shock and support an expansion of their balance sheets. canadian banks have been able to issue medium - term paper and capital - eligible subordinated debt to meet existing and future funding needs. however, it is clear that there is now a greater awareness of risk – an awareness that was slow in developing, despite numerous warnings of the possibility of a sudden repricing of risk in credit markets. and this repricing is being hampered by a lack of liquidity in markets for some structured products because of the complexity and opacity of these new products. in a sense, we are witnessing the growing pains of an immature segment of the market, a segment that did not exist five to seven years ago. so, there are lessons to be learned and corrections to be made. most of the corrections will undoubtedly be driven by market participants themselves, who will seek greater disclosure and greater standardization of structured products, and who will adopt stronger risk - management practices, including lesser reliance on credit ratings. the recent market events have made crystal clear just how crucial disclosure is to financial markets. to operate efficiently, markets need information. at the heart of the summer's market turbulence were structured products that were so complex and opaque that even some sophisticated investors couldn't understand exactly what they were buying. this lack of transparency led to a breakdown when investors started to question the value of the assets backing the securities that they owned. so, it is in the interest of market participants to make sure that all parties to a transaction have access to all the necessary information. investors must demand greater transparency where it is now lacking. vendors of financial instruments will then need to structure them in such a way that market players can clearly see what they are buying and what leverage is embedded in the instrument. in this way, market discipline will be more effectively exercised. credit - rating agencies can help with this by being more forthcoming about the assumptions on which they based their ratings, and by adjusting their ratings promptly when circumstances require. the role credit - rating agencies played in the recent market turmoil has generated a great deal of debate. bank of canada research to be published in next month's fsr notes that there are some natural

require a lower policy rate than would have otherwise been the case. we communicate our research and analysis of trends and developments in the financial system, including policy and infrastructure developments, as well as our assessment of systemic risks and vulnerabilities, in our semi - annual financial system review ( fsr ). the next issue of the fsr will be published on 6 december and will examine, among other things, recent developments in the market for asset - backed commercial paper, as well as the current debate around credit - rating agencies. the fsr will be available on our website on that date. lessons from the events of last summer that's a quick overview of the work that we do to strengthen financial system stability. now, let me go on to the third question that i raised in my introduction, which relates to the lessons we've learned from this year's turbulence in global financial markets. while the turbulence is not over, it is not too early to begin to probe its causes and effects and start to draw lessons as to how we can strengthen the ability of the financial system to deal with stress. the recent turbulence was triggered by greater - than - expected losses on u. s. subprime mortgages, which unexpectedly spread around the world because these mortgage loans were re - packaged into opaque structured products funded, in many cases, by short - term asset - backed commercial paper. liquidity evaporated in the market for structured products as investors shunned them. a flight to the safety and liquidity of government securities ensued, and credit spreads increased. many commercial banks were affected, with the impact coming from such sources as their direct holdings of these structures, their commitments to provide funding to conduits, their difficulty in securitizing loans, and the fact that companies began to fall back on their bank lines of credit. at the same time, many banks became reluctant to make loans to one another because of uncertainties around counterparty risk and about their own future funding needs. the effect was to increase the cost and reduce the availability of credit, both in canada and globally. in canada, the abcp problem took on a unique characteristic since non - bank sponsors had issued paper with restrictions on the back - up lines of credit which prevented their access to these lines. this prompted a call for a standstill ( known as the montreal proposal ) to effect an orderly workout for most of these abcp conduits. the standstill period has been extended to 14