of the story. the bank recently established the canadian fixed - income forum to enable a continuing dialogue, and we ’ ve modified our operations to help alleviate some of these issues. the governing council believes it ’ s important to continue studying the matter, not just as it pertains to government bonds, but also to other asset classes. given the new regulatory architecture, we may not know just how resilient market liquidity is until there ’ s a true stress event. let me now turn to vulnerabilities being created by persistently very low interest rates in canada. the post - crisis situation has quite naturally fuelled the accumulation of household debt, as well as heightened activity in the housing sector. we can observe other elements of risky financial behaviour, but these two vulnerabilities have been our main focus for some time and have continued to grow in importance since our last fsr. in terms of household debt, income growth hasn ’ t kept pace with increases in borrowing, since mortgage growth continues to rise. more borrowing was expected, given the reductions in our policy interest rate earlier this year. it ’ s important to remember that while rate reductions have increased vulnerabilities at the margin, they ’ ve also mitigated the risk to the bis central bankers ’ speeches financial system by helping offset the decline in incomes and employment tied to the drop in commodity prices. our analysis shows that there has been an increase in the number of highly indebted households in canada, by which i mean those whose debts are more than 350 per cent of their annual gross income. not only are there more of these highly indebted households, they also carry a growing share of household debt. these people are more likely to live in british columbia, alberta or ontario, where house price gains have been the largest. the governing council ’ s reading of the situation is that these vulnerabilities are quite highly concentrated – about 720, 000 households fall into this vulnerable category. in terms of the housing market, we continue to see regional markets evolving along different tracks, as we ’ ve indicated before. activity in the energy - producing regions of alberta, saskatchewan, and newfoundland and labrador has declined noticeably, which was expected following the decline in oil prices. the housing markets of toronto and vancouver have seen renewed momentum, driven by stronger employment growth and migration, both interprovincial and international. the governing council ’ s base - case scenario continues to be a constructive one : housing activity should stabilize in

has gone global, are different than recoveries from “ normal ” recessions. some allowance has to be made for this. second, new shocks have hit the global economy since 2008. the earthquake in japan and the crisis in europe are the most obvious examples, although some would argue that the latter is simply an extension of the initial financial crisis. even allowing for these factors, however, there is a sense that we could have done better. what needs to be done? can we get back to where we want to be? in a word, yes. what is needed is very similar to what was first proposed and agreed in late 2009, but with some necessary modifications. the following list is not meant to be comprehensive but simply hits the highlights. first the united states must deal with its fiscal cliff. action is required to bring the budget into line. but something with a smoother profile over the next two to three years, coupled with a credible long - term track would be preferable to the aggressive tack now in play. second, europe must set itself right. certain things are required just to contain the crisis. these include activating the stabilization mechanism to help support sovereign debt re - financing and recapitalize banks, and the outright monetary transactions program, which will help eliminate the risk of euro redenomination and improve the monetary policy transmission mechanism in the euro area. bis central bankers ’ speeches of course, it will take several years to fully resolve the crisis in europe. key elements are further fiscal consolidation in many countries, repair of the broken banking systems, deep reform in labour and product markets, improved governance, and eventual completion of the banking, fiscal and political unions. third, surplus countries that are delaying necessary global adjustment by frustrating necessary exchange - rate changes should move more expeditiously toward market - determined rates. in addition, they should undertake the structural changes necessary to boost domestic demand, with particular emphasis on consumption. this would allow more of their citizens to realize the full rewards of their labours and improve general economic welfare. conclusion there is an old joke about a lost traveller who asks for directions and is told by a local, “ i wouldn ’ t try to get there from here. ” unfortunately, we have no choice about our point of departure. it would be easier if we were starting from a better place, but we aren ’ t. happily, the original road map established in 2009 remains broadly appropriate. 10 more may be required, since we have lost valuable time