can convene senior policy - makers, challenge them, and then forge a consensus on how to foster sustainable global economic growth. third, countries must recognize that membership in these organizations brings responsibilities. this is why canada successfully pushed at the recent g - 20 summit for mandatory regular reviews of each country's financial system by the imf ( a process carried out under the financial sector assessment program or fsap ). finally, it matters who is around the table. in washington last month, g - 20 leaders agreed to expand the fsf to include key emerging markets. these countries not only have first - hand experience of financial crises but also are the major surplus countries who, as major capital providers, need to be part of a global solution. 2 examples include bill white, formerly of both the bank of canada and the bank for international settlements ; harvard university's ken rogoff ; nouriel roubini of new york university ; wynne godley of cambridge ; and bernard connolly of aig financial products. m. carney, " reflections on recent international economic developments " ( speech to the canadian club of montreal, montreal, quebec, 25 september 2008 ). domestic responsibility for financial stability is currently shared among a large number of federal and provincial bodies. this includes the bank of canada, which is mandated by legislation to " promote the economic and financial welfare of canada. " today i would like to focus on how the bank can fulfill this broad mandate by contributing to financial stability in canada. a macroprudential approach a clear lesson of the current crisis is the need to take a macroprudential approach to financial stability. macroprudential surveillance assesses current risks by looking at the broad economic and financial conditions that can contribute to the buildup of risks to the financial system and the economy as a whole. macroprudential regulation seeks to improve the resiliency of the financial system by designing standards and codes to limit the buildup of financial and economic imbalances. put simply, a macroprudential approach focuses on the forest, not the trees. two topical fallacies of composition illustrate the point. the first is what keynes termed the " paradox of thrift. " it may be individually rational for people to want to save more and businesses to invest less during uncertain economic times. if this behaviour is widespread, however, it becomes collectively irrational. fear of recession feeds a recession. similarly, a bank may decide to hoard capital in anticipation of increased

per cent of total household debt, a figure double the average of the past 10 years. if this scenario were to materialize, it would prompt significant losses among canada's banks. however, it is important not to overplay this scenario, since it actually illustrates the strength of our system. first, the scenario is extreme – the annual growth of household income has not been negative during any quarter over the 37 years for which data are available. second, while the average tier 1 capital ratio of our banks would fall from 9. 7 per cent to about 8. 8 per cent, this figure is still more than two times the minimum ratio allowed under the basel ii accord, and well above osfi's 7 per cent threshold. there are a number of reasons why the risk posed by household balance sheets is significantly lower in canada than elsewhere, not the least of which is canada's more conservative lending culture. for example, subprime mortgages account for less than 5 per cent of canadian mortgage lending, roughly one - third the level in the united states. further, since canada requires insurance on high - loan - to - value mortgages and canada mortgage bonds carry an explicit sovereign guarantee, there has been no negative feedback loop between the housing market and the financial sector as has been all too apparent in other major economies. while canada's debt - service ratio remains below its historical average, as i mentioned, the debt - service ratio in the united states remains above its historical average. further, the absolute cost of household debt in canada – both mortgage and other loans – has fallen by about 100 basis points since the onset of the crisis last year. nonetheless, the bank of canada will continue to closely monitor the risk posed to financial stability from household balance sheets. in addition, the bank will closely consider the possibility that households may be more sensitive to shocks to their income or wealth as it develops its outlook for canadian growth and inflation. conclusion in times of crisis, it is easy to understand the links between financial stability and the real economy. while these are all too apparent, it is sometimes hard to see the end of the crisis. but end it will. the actions that policy - makers are taking will be effective. the global economy will emerge from this period of weakness. in the years ahead, when times are better, the need to promote financial stability may not be as clear - cut, even though it will be no less important. the bank of canada will continue to take a macropr