tiff macklem : reflections on monetary policy after the great recession remarks by mr tiff macklem, senior deputy governor of the bank of canada, at the international finance club of montreal, montreal, 5 october 2010. * * * introduction i am delighted to be in montreal and to address the international finance club of montreal in the mount stephen club – a beautiful and elegant venue steeped in canadian and quebec history. it was founded by business leaders and is still a gathering place of grace and influence. as a native montrealer, i am particularly pleased to be coming home to deliver my first speech as senior deputy governor of the bank of canada. the mount stephen club opened its doors during the roaring twenties. as a meeting place for montreal ’ s business elite, a great many frank discussions must have taken place in its early days about the stock market bubble, the crash of ’ 29 and the ensuing great depression. it is with some humility that i suggest those discussions were likely similar to more recent conversations that have taken place within these walls about the credit boom, the financial crisis, and the great recession. what i thought i could do today is contribute to this tradition of frank discussion by sharing with you some of my reflections on monetary policy coming out of the great recession. my remarks today focus on three themes : what ’ s worked well what ’ s been missing and what needs to be brought back after a period of neglect after spending many years at the bank of canada, i was recently at the department of finance, where i was associate deputy minister and canada ’ s g - 7 and g - 20 deputy. during that time, i continued to work closely with the bank, as well as with the office of the superintendent of financial institutions ( osfi ) and other partners coordinating canada ’ s response to the financial crisis. but as far as monetary policy goes, that remained solely the purview of the bank of canada. i was a spectator like everyone else here today. so i offer these reflections as someone who was on the outside looking in during the great recession. global economic growth has returned although the great recession is now over and global economic growth has returned, it is not a great recovery. growth is uneven, and there is an unusual degree of uncertainty. globally, the financial crisis has left scars of lost output and jobs, declines in household wealth, impaired financial systems and large fiscal deficits. with households, financial firms and governments all deleveraging, the global recovery is expected to be

the us financial crises, which occurred about a decade ago. 15. in our own history, the banking sector has witnessed its fair share of corporate scandals and bank failures. looking back to the 1980s, the ghanaian economy experienced one of its worst performances which spilled over to the banking sector. signs of financial distress emerged as public confidence in the financial sector waned, aggravated by a demonetization programme, and negative real interest rates on bank deposits. the loan books of banks became severely impaired and eroding the capital base of the affected banks. 16. over time, the economic difficulties coupled with poor corporate governance structures resulted in the eventual collapse of four banks and restructuring of others. these failures prompted the need for extensive policy measures and reforms to strengthen the legal and regulatory 7 | page frameworks. several laws were enacted to enhance business practices and risk management systems in the banking industry. as time progressed, other pieces of legislature were enacted in response to the changing dynamics and in line with international standards. 17. ladies and gentlemen, in recounting this history, i am seeking to draw attention to the adage that ‘ history repeats itself ’. despite the improved regulatory environment and supervisory frameworks, we have witnessed the resolution of two banks this year. while no systemic challenges to the financial sector arose from the resolution, it is useful to understand the underlying factors and reposition the sector to avoid the same mistakes in the years ahead. 18. let me be upfront and say that though the failure of the two banks was due to significant capital deficiencies, the underlying reason was poor corporate governance practices within these institutions. in this instance, we saw the dominant role of shareholders who exerted undue influence on management of the banks, leading to poor lending practices. this was also reinforced by weak risk management systems and poor oversight responsibility by the boards of directors. some of the examples of recklessness that led to the failure of the two banks include : 8 | page co - mingling of the banks ’ activities with their related holding companies. for instance, one bank was paying royalties for the brand name, even at the a that the bank ’ s financial performance was abysmal and could not pay dividends. interestingly, the royalties were approved by four ( 4 ) out of seven ( 7 ) members of the board without the consent of the other significant minority shareholders including an international financial institution. as a result, the international institution placed a notice on its website abrogating all relationships with the bank