located in canada. we would also be better placed to manage a crisis and provide emergency liquidity support for a canadian ccp should that be necessary. while cooperative arrangements for oversight and crisis management of offshore ccps can be developed, and are currently being discussed at the international level, this work is still in progress. such arrangements will need to be adequate to enable the bank to fulfill its responsibilities for overseeing and safeguarding the stability of the canadian financial system. a domestic ccp could offer other advantages as well. it could, in some situations, reduce – although certainly not eliminate – the impact on canadian markets of financial shocks from abroad. it could be tailored to the needs of the canadian financial system and support the development of market expertise and innovation. the key questions are whether a domestic ccp would be economically viable and whether it would support financial stability and efficiency. we know that much of the otc market is global in nature and that, for a canadian clearing service for otc interest rate swaps to be a success, wide participation of both canadian and global firms is necessary. without that, the market could become fragmented, market liquidity could decline and the domestic ccp ’ s own risk controls could be undermined. yet another key question is whether a domestic ccp would adequately address the clearing needs of canadian financial institutions. as a related point, a canadian ccp would need to be reasonably cost - effective ; otherwise it could push transactions offshore, undermining its potential benefits. developing links between ccps in different jurisdictions could help to minimize fragmentation of the market. but establishing such links would be a complicated undertaking, and risk within the links would have to be properly managed. in practice, while a few ccp links exist and are in operation ( for cash markets, in particular ), there is not yet a generally accepted model that could be used for the establishment of links among ccps clearing trades in otc derivatives. in assessing the best clearing strategy for canadian otc derivatives, the bank of canada is moving forward on two fronts. first, we are working with our domestic and international counterparts to ensure that global ccps, particularly those of systemic importance to canada, are able to deliver the intended benefits of financial stability. second, we are actively exploring the possibility of developing a canadian - domiciled ccp, in collaboration with the financial industry and other public policy institutions. we must choose the arrangements that best support the stability and efficiency of canada ’ s financial system. conclusion we are

timothy lane : curbing contagion – options and challenges for building more robust financial market infrastructure remarks by mr timothy lane, deputy governor of the bank of canada, to the society for worldwide interbank financial telecommunication annual sibos conference, toronto, ontario, 19 september 2011. * * * introduction good afternoon and, to our guests from abroad, welcome to canada. this conference is taking place at a troubled time. concerns over sovereign debt have intensified, particularly in europe ’ s periphery. economic growth in the united states and other advanced economies now appears to be significantly weaker than expected. in the face of these developments, there has been mounting skepticism in a number of countries over whether policy - makers will be able to do what it takes to address these problems. the current bout of turbulence, like the financial crisis of three years ago, serves as a reminder of why it is fundamentally important to have a resilient financial system. periods of market turbulence are a fact of life. in a resilient system, financial shocks are absorbed, creating losses for individual investors, but leaving the system intact. if the system is not sufficiently resilient, however, shocks can be amplified. we saw this in 2008, when losses in a relatively small segment of the u. s. housing market cascaded into a near - meltdown of the global financial system. that process reflected a mixture of frailties – excessive leverage, reliance on forms of liquidity that proved illusory in stressful times, the use of securitized products with risks that were not fully understood, the complex web of counterparty relationships that spread risk and bred fear in core funding markets, and the absence of resolution mechanisms to deal with insolvency in systemically important institutions without endangering the entire system. in the wake of that crisis, leaders of the g - 20 countries launched a broad agenda of reforms. these reforms aim to ensure that financial institutions have adequate levels of lossabsorbing capital and liquidity to cope with periods of market stress ; to establish robust financial market infrastructure ; and to develop stronger resolution mechanisms for financial institutions, particularly across borders. when implemented, the g - 20 reforms will create a more resilient global financial system. canada will benefit significantly from these reforms. even though our financial system performed much better through the crisis than those of many other advanced countries, we are certainly not immune to events beyond our borders. in my talk this afternoon i want to focus on one element of the g