to use the flexibility that is an integral part of the framework. the agreement notes that our extended monetary policy tools can help address lower neutral interest rates. it notes that in the right circumstances, actively seeking maximum sustainable employment can help us address the inherent uncertainty about the level of employment that is consistent with price stability. and we will continue to consider a broad range of job market indicators to gauge the health of the labour market. this framework is what we need to complete the recovery from the pandemic. having ended quantitative easing, we are now focused on our forward guidance — on assessing the diminishing degree of slack in the economy and on bringing inflation sustainably back to target. this framework is also what we need post - pandemic. while we all hope that we will never again see a recession as sharp as the one caused by covid - 19, it won ’ t be the last recession we face. we need to ensure that monetary policy has the ability to provide stimulus when needed in a world of low neutral rates. and even as the economy normalizes, uncertainty about maximum sustainable employment is not going away. the government and the bank also acknowledged that a low interest rate environment can be more prone to financial imbalances. in this context, the government will continue to work with all relevant federal agencies to ensure that canadian arrangements for financial regulation and supervision are fit for purpose and consider changes if and where appropriate. additionally, while monetary policy cannot directly tackle the threats posed by climate change, the bank will develop the modelling tools needed to take into account the important implications of climate change for the canadian economy and financial system. in my remaining time today, let me expand on our extended monetary policy tools and the attention we are giving to labour markets. using our tools to address low neutral rates with low global interest rates, the bank is likely to lower its policy rate to the elb more often in response to shocks. that means we may need to use forward guidance and our balance sheet more often than has been required in the past. we know that the rates that matter most for consumers and businesses are medium - term rates for mortgages, lines of credit and business loans. forward guidance and quantitative easing can help us push these rates down. 7 in certain circumstances, to support employment and return inflation to target, we can leverage the flexibility that already exists in our framework to make monetary policy more effective at the elb. one of the best ways to do that is to use exceptional forward guidance.

”. very few banks fail because they are insolvent today. they don ’ t get that far. typically, they fail because of a rising probability that they are expected to be insolvent at some point ( s ) in the future. this is important because regulating banks has to be forward looking, and in my view has not been adequately so in the past. it also means that a problem in a bank can spread to create a problem in the wider financial system, so called systemic risk. maintaining the stability of the financial system – financial stability – is therefore at the heart of the efforts of the authorities to prevent problems in banks spreading out of control. the financial crisis of the last three and a half years has illustrated starkly what can happen when financial stability is not maintained. so, establishing and maintaining financial stability should be high up everyone ’ s agenda, and we should embed financial stability as the objective of public policy towards regulating the financial system. you can reasonably ask, why is this difficult to achieve? financial stability is difficult to define quantitatively and precisely. some people say that you know it when you have it, but it might be better to say that you know when you don ’ t have it. what is being done to tackle the issue? a month ago, the government issued a consultation paper which seeks to define the financial stability objective that will be given to the new financial policy committee of the bank of england under its plans. the objective is defined at the high level as protecting and enhancing the stability of the financial system of the uk. more precisely, the bank ’ s objective “ relates primary to the identification of, monitoring of, and taking of action to remove or reduce ” risk to the stability of the uk financial system as a whole or to a significant part of the system, “ with a view to protecting and enhancing the resilience of the uk financial system ”. but the paper goes on to include in the objective the statement that : this does not require or authorise the bank “ to exercise its function in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the uk economy in the medium or long term ”. here then we have the recognition of the need to have regard to the impact of financial regulation on the long - run growth of the economy. to back this up, the government intends to include in the legislation a power for it to provide the bank with