operate using a relatively small amount of liquidity compared with systems in other countries. this frees up resources that can be put to more productive use elsewhere. the bank of canada is also the “ lender of last resort ” - the ultimate provider of liquidity to the financial system. indeed, we ’ ve just concluded a review of that role, and the details can be found in the fsr that we released today. there is also an international element to our efforts. the bank of canada works with partners in other countries on initiatives to strengthen the international financial system. the goal is to minimize the risk of a financial crisis in one part of the world spreading across borders. but that ’ s a topic for a whole other speech. so to summarize, canada ’ s macroeconomic and prudential policies generally do the job they are supposed to do in supporting efficiency. but let me be clear - we are not complacent ; we are always looking for ways to improve. continuous improvement is essential. efficiency in financial institutions and markets now, i want to talk more specifically about the microeconomic aspects of efficiency in financial institutions and markets, including the promotion of competition and the provision of an appropriate legal and regulatory framework. competition drives innovation and efficiency gains. and an appropriate legal and regulatory framework gives all investors fair access to necessary information, while minimizing the costs of raising capital. the evidence shows that canada ’ s financial institutions and markets have generally been efficient when compared with those in other countries. but over the past decade, markets and financial institutions elsewhere have become - and are becoming - more efficient. to stay competitive in this environment, canada ’ s financial system must also constantly increase its efficiency. if we don ’ t make this effort, the canadian economy will suffer. the status quo won ’ t cut it. so what should our priorities be? i ’ ll talk about financial institutions first and then about financial markets. efficiency and financial institutions in terms of financial institutions, a quick look backward may show us the way forward. i want to go back 40 years, to 1964, and recall the royal commission on banking and finance, otherwise known as the porter commission. the porter commission was well ahead of its time, with groundbreaking analysis and policy recommendations. in the post - world war ii environment, where extensive government controls on the economy were still thought desirable, porter came out strongly in favour of greater competition, freer markets, and effective regulation that served to enhance efficiency. in the

relatively even more efficient. so what can canada do to improve the efficiency of its markets? one area that has received a lot of attention, not just in canada but in many other countries, is securities regulation. the key issue is to reduce what economists call “ information asymmetries ” by as much as is practical. what that means is that our regulatory framework should aim - in general - at having market prices reflect all relevant information, and that all parties to a transaction should have fair access to that information. we can enhance efficiency by reducing information asymmetries up to the point where the cost of additional compliance would outweigh the benefits. following events such as enron, parmalat, and livent, it became clear that investors were not always receiving sufficient and accurate information. corporate scandals prompted many an investor to say : “ there oughta be a law! ” - a law to make publicly traded companies disclose all information. but in the rush to write laws and regulations, too much attention has been paid to detailed rules that govern how companies disclose information, rather than focusing on what they disclose. we have seen a large increase in the costs of providing information - particularly in the united states - without commensurate progress towards improving the relevance of the information being disclosed. the concept of relevant disclosure is particularly important for a country like canada, where public companies range in size from the very small to the large and multinational. the precise nature of what constitutes relevant information differs depending on the size and complexity of the firm. corporate disclosure regulations should recognize this. for large, complex firms, more complex rules are required in order for investors to receive appropriate information. but for smaller firms, less - complex disclosure regulations - and lower costs of compliance - may result in the best cost - benefit balance. the canadian securities administrators recognized this point in putting forward new proposals for guidelines for corporate governance that are based on a firm ’ s size. there is another consideration, and that is the need for some companies to have access to global capital markets. firms that want to list on international exchanges will have to follow the disclosure rules that apply in those markets. and large canadian firms that want to raise capital abroad need regulations here that are recognized as meeting international standards. but smaller, less - complex firms - which make up the vast majority of publicly listed companies in canada - may not want to raise capital abroad. so it may not make sense for canadian regulators to force these smaller firms to comply with the kinds of