progress in a number of areas, but more needs to be done. for example, we identified the financial institutions and fmis that could have outsized impacts on the financial system if they failed, and we are subjecting them to more stringent regulation and supervision, including recovery and resolution planning. 23 central banks and international policy organizations have also worked to develop earlywarning indicators of risks to the global financial system. 24 while these are helpful as a starting point, we need to recognize their limitations, particularly if they rely on deviations from historical trends or threshold values. that is why it is important to push the analysis further to properly gauge the risk. stress tests are an excellent way to help us understand what could happen if financial institutions were subject to adverse events, such as a steep house price decline or a brexit vote. they also provide practical information about what might be needed to withstand and recover from these events. the bank of canada works with other organizations, such as osfi and the international monetary fund, to conduct regular stress - testing exercises of financial institutions and to improve our modelling techniques. 25 the unfinished business here is that models used for stress testing capture mainly firstround effects, with limited ability to identify spillovers that we know can end up being even more important. for example, while the bank ’ s current framework does capture second - round effects that could come from interbank exposures and asset fire sales, it could be improved. the bank, and others who conduct stress tests, could introduce the basel committee on banking supervision has developed quantitative metrics for identifying global systemically important banks ( g - sibs ) and a set of principles ( no quantitative metrics ) for assessing domestic systemically important banks ( d - sibs ) : “ global systemically important banks : updated assessment methodology and the higher loss absorbency requirement ” ( july 2013 ) and “ a framework for dealing with domestic systemically important banks ” ( october 2012 ). for example, see bank for international settlements, “ early warning indicators of banking crises : expanding the family ” ( march 2018 ) ; and t. duprey and t. roberts, “ a barometer of canadian financial system vulnerabilities, ” bank of canada staff analytical note no. 2017 - 24 ( december 2017 ). 25 k. anand, g. bedard - page and v. traclet, “ stress testing the canadian banking system : a system - wide approach, ” bank of canada financial system review (

instead, how we promote road safety and prevent car accidents, which require the simultaneous application of standards for • driver education and competence ; • automobile operations and safety ; and • road quality and appropriate signage. a similar tri - fold approach for financial stability would entail clear objectives accompanied by the necessary powers and instruments for bis central bankers ’ speeches • financial education and information for consumers, lenders and investors ; • microprudential regulation and supervision ; and • macroprudential monitoring and regulation. a broader contribution for central banks so how can central banks broaden their contribution to financial stability? by promoting financial stability through the following measures : first, by encouraging prudence on the part of borrowers and lenders. most central banks publish or contribute to financial system reviews or financial stability reports. such reviews or reports monitor and assess financial vulnerabilities and risks and serve as an early warning mechanism. in addition, the underlying analysis in them provides a basis for recommendations for pre - emptive policy actions. these publications are thus an important means for central banks to contribute to financial stability. for example, the bank of canada has used its financial system review to inform households and lending institutions of our assessment of the vulnerability associated with elevated household debt in an effort to encourage all parties to exercise appropriate caution. second, by enhancing market discipline through increased transparency. by making their analyses and assessments public, central banks can increase awareness of financial system vulnerabilities, risks and their potential triggers so that investors and other market participants can appropriately price and manage risk. third, by strengthening regulation and supervision of the financial sector. since the crisis, the regulatory and supervisory framework for financial systems has been strengthened, and more rigorous global standards have been implemented in many jurisdictions. central banks contributed to the development of these standards through their involvement in international forums such as the financial stability board and other standardsetting bodies. an important example is the basel iii regulatory reforms, which require banks to hold more and higher - quality capital and meet new liquidity and leverage requirements and have thus made the banking system more resilient. while some central banks, including the bank of canada, are not directly involved in overseeing the implementation of these new standards, they can help evaluate their effectiveness. by working with regulators to implement coherent macro stress tests on the banking system they can jointly assess the ability of the banking system to withstand severe macroeconomic shocks. these tests would incorporate existing vulnerabilities. their main goal is to encourage the institutions themselves,