this possibility, serious consideration is being given to enforcing minimum quality standards for the methodologies that market participants use to set collateral haircuts for repos. this could include imposing minimum numerical haircuts for certain types of more risky transactions. 5 now let me turn to securitization. here, one of the priorities is to align the incentives of institutions that originate loans with those of investors. proposals have focused on the need to ensure that the originators have “ skin in the game, ” by requiring them to retain a certain minimum share of the securities they sell, and to enhance transparency regarding the underlying assets. proposals for the reform of mmfs focus on reducing their vulnerability to run - like behaviour. like bank deposits, an mmf traditionally promises to redeem its shares at par, that is, at a constant net asset value. the mmf investors may thus have an incentive to run in a case where the assets may be insufficient to back up that claim – for instance, if there are concerns that the fund may have suffered serious credit losses on some assets. various proposals to address that weakness are on the table : moving to variable net asset value ; requiring a cushion of capital or imposing tighter requirements on the liquidity of the assets held by the mmf ; establishing “ gates ” – i. e., restrictions on investors ’ ability to withdraw their money at short notice ; or a combination of these measures. the goal is to make mmfs less vulnerable to runs without ending their usefulness as a close substitute for bank deposits and an important source of short - term funding for a number of private and public sector borrowers. what does this mean for canada? so far, i ’ ve been talking about shadow banking issues mainly from an international perspective. now i would like to focus on how these issues apply here at home. in canada, shadow banking is more limited in scale and scope than in other jurisdictions, especially the united states, where competitive pressures and regulatory restrictions drove some activities out of the banking system. let ’ s look at some numbers. shadow banking in canada represents about 40 per cent of activity in the traditional banking sector, down from an average of about 50 per cent during the decade before 2008. as a share of gdp, canadian shadow banking is roughly 40 per cent, compared with about 95 per cent in the united states. 6 committee on the global financial system, 2010, “ the role of margin requirements and haircuts in procyclicality, ” c

to the traditional banking system that provides competition, diversity and innovation. at the same time, reforms are needed to make shadow banking safer. shadow banking should be made less susceptible to run - like behaviour and contagion. aligning incentives – through transparency and appropriate regulation – is also essential. canada has a stake in these reforms, both as a beneficiary of a more resilient global financial system and because our own shadow banking activities could be made more robust. since innovation is one of the key benefits of shadow banking, innovation is also a fact of life in regulating the sector. shadow banking has been known to reinvent itself and will continue to do so in response to regulation. we will need to develop and adopt principles that are broad - based enough to encompass new activities. risk is inherent in the global financial system. we can ’ t stamp it all out, nor would we want to. rather, the goal is to create incentives so that risk is allocated and managed appropriately, both in banking and in shadow banking activities, making the entire financial system stronger and more resilient. bis central bankers ’ speeches