system from being primarily relationship - oriented and dominated by banks to being primarily transactions - oriented and dominated by financial markets. this model had the potential to price risk and to allocate capital more efficiently. in some cases, however, the development of markets ran well ahead of the supporting infrastructure. moreover, lulled by early successes, participants became increasingly reliant on opaque securitization, dependent on excessive leverage, and complacent about market liquidity. a system that appeared resilient ( and enormously profitable ) in times of low volatility proved brittle in the face of shocks. with the breakdown of many markets, the pendulum is swinging away from market - based finance back towards bank - based finance. this shift carries with it a number of costs and associated risks. first, the sudden re - emphasis on bank - based intermediation has led to an urgent need for banks to raise very large amounts of capital. if not managed properly, this threatens to exacerbate the global economic slowdown. second, the crisis has shaken a number of articles of faith among market participants : that one could always borrow against " good " collateral, that market - based liquidity would always be available, and that ratings were efficient substitutes for due diligence and judgment. with these assumptions now in doubt, certain markets are now frozen and could take a long time to return, if they do at all. third, in recent weeks, we have seen evidence of a " home bias " re - emerging in global financial markets as banks and investors furiously repatriate capital. this reflects both the desire of banks to concentrate their limited resources on geographically close relationships, and the need for funds to liquidate assets in preparation for large redemptions. this development has the potential to significantly slow growth in some emerging markets. all of these risks are the consequence of relying on markets built on sand. to find the bedrock on which to rebuild open continuous markets, all of us – market participants and policy - makers alike – must learn the lessons of this crisis. lessons of the crisis the crisis has its roots in macroeconomic imbalances and microeconomic failures. on the macro side, we are experiencing the inevitable correction of a period of global imbalances, characterized by excess savings and under - consumption in major emerging markets, and by negative savings, rapid credit expansion, and asset - price booms in many western economies. these trends were encouraged by policies including, in asia, infle

standards. having outlined these strategies, i would now like to use the canadian situation to illustrate a few points about how they may be applied. the canadian perspective canada's experience is instructive. while canada's financial system has been affected by the crisis in global financial markets, the impact has been significantly less than in many other major economies, not least because canada is further along than others in implementing the g - 7 action plan. canada starts with financial institutions that are healthier than their international peers. not merely have losses on structured products of canadian banks been modest, but more importantly, their absolute leverage is markedly lower. as a simple illustration, major canadian banks have an average asset - to - capital multiple of 18 on a consolidated basis, which is slightly below the regulatory maximum of 20. the comparable figure for u. s. investment banks is over 25. for european banks, it is in the 30s, and for some major global banks, it is over 40. while foreign banks are in the process of moving towards canadian levels, our banks obviously face no such pressures. in addition, the quality of tier 1 capital of canadian banks is among the strongest in the world. canada's conservative banking culture clearly helped our institutions avoid some the most egregious lending practices seen elsewhere. so, too, has the nature of securitization in canada. only about 20 per cent of canadian mortgages are securitized. with more of this lending remaining on balance sheets, underwriting standards have remained high. further, since canada requires insurance on high - loan - to - value mortgages and canada mortgage bonds are explicitly guaranteed by the sovereign, there is no negative feedback loop between the housing market and the financial sector as has been all too apparent in other major economies. our experience demonstrates that the g - 7 strategy will work. given the combination of strong core institutions, the provision of exceptional term liquidity by the bank of canada, and the now material term funding from the government of canada, we expect that our major financial institutions will cascade that liquidity through the system by supporting continuous markets and extending credit. unfortunately, in other jurisdictions, this is not yet the case. the weaker the starting point of regulated institutions and the greater the importance of the shadow banking sector, the longer the healing process could take. indeed, in a range of countries, this process must be carefully managed to avoid worsening their recessions. in particular, the overhang of large capital requirements could