). government of canada securities provided the underlying collateral for almost 70 per cent of transactions. hence, the repo market supports the functioning of crucial cash markets. in sum, the repo market is considered a core funding market in canada, because it represents a major source of funds for financial institutions. in addition, there is no immediate substitute for this market, so if it were to cease operating, significant contagion would likely result. 1 this is why we must make every effort to ensure that it remains continuously open. risks brought to light by the crisis during the financial crisis of 2007 – 08, weakness in the infrastructures of some financial markets contributed to uncertainty and, although not the cause of the crisis, intensified the systemic risk. this was notably the case in repo markets. in fact, participants ’ uncertainty about the valuation of collateral and the network of bilateral exposures among financial institutions exacerbated their aversion to counterparty risk, to the point that many reduced the number of trades and, in some cases, even left the market. j. - s. fontaine, j. selody and c. wilkins, “ improving the resilience of core funding markets, ” bank of canada financial system review ( december 2009 ) : 41 – 46. bis central bankers ’ speeches recall that illiquidity in the repo market was an important contributor to the near - collapse of bear stearns in march of 2008. repo markets in canada suffered a severe liquidity crunch in the autumn of that year. following the bankruptcy of major financial institutions abroad, concerns about counterparties spread, and balance sheets were subject to severe strains. in the absence of a ccp that would allow its members to ease their balance sheets through balance - sheet netting, banks drastically curtailed their repo activity. the crisis clearly demonstrated the need for action to bolster the resilience of this market. in canada, the investment industry association of canada, with the support of the bank of canada, issued a request for proposal for the development of ccp services for repos. in december 2009, cdcc was selected to provide these services. the ccp for repo transactions and risk management how does this central counterparty work? put simply, a central counterparty functions as an intermediary in financial transactions. through a legal process called “ novation, ” it becomes the buyer for every seller and the seller for every buyer. 2 in other words, a very complex network

is not under the direct control of monetary policy, and it is not our objective. we target a 2 per cent inflation rate. that means that it is the outlook for overall inflationary pressure and related risks that matters most when we consider the appropriate stance for monetary policy. so even if only a few sectors were expanding enough to absorb the excess capacity in the aggregate economy, we would need to take the appropriate monetary policy action to meet our inflation target. so let us look at how the economy has been performing recently. signs that growth is broadening when we assess the extent to which the sources of growth are broadening, we look at the economy from a number of perspectives. these include the progress made in adjusting to lower oil prices, the range of industries that are growing and the evolution of the labour market. as i discuss each in turn, i will point to some signs that growth is broadening across regions and sectors, although not to the same extent. adjustment to lower oil prices let us start with the adjustment to lower oil prices. in 2015 and 2016, the starkest effects of the drop in oil prices on gdp were in business investment. firms in the oil and gas sector cut capital spending in half, shutting down oil rigs and cancelling investment plans. investment in the rest of the economy was also subdued, in part as a result of the weakness in non - commodity exports, especially last year. the economy kept growing, thanks to household spending, and activity was concentrated in regions where the energy sector was not as important. today, as we move past the adjustment to lower oil prices, we are seeing the economy pick up. a couple of weeks ago we got the national accounts data from statistics canada for the first quarter of this year. it was pretty impressive, with growth at 3. 7 per cent. and the figures show business investment growing again. this is in large part because capital expenditures in the oil and gas sector have bounced back. that is good news. that said, investment growth in this sector is likely to moderate if oil prices stay around where they are today. more generally, ongoing uncertainty about the policies of the us administration is weighing on investment plans. and, given how business investment has declined in the past two years, we flagged it as one of the downside risks to the outlook in our april monetary policy report. growth in the first quarter was also fuelled by the usual suspects — consumer spending and residential investment. however, growth in the housing sector is