##gors being personally liable for their debts and mortgage interest not being tax - deductible. in addition, key lending standards are effectively set by the terms of government - backed mortgage insurance. 7 banks are required to have insurance on the mortgages of purchasers office of the superintendent of financial institutions act, 1985. published by minister of justice. examples with an explicit macroprudential focus include the european systemic risk board for the european union, the systemic risk council in the united states, and unitary models housed in central banks in the united kingdom and australia. financial stability board, “ intensity and effectiveness of sifi supervision ; recommendations for enhanced supervision ”, 1 november 2010. the publicly owned mortgage insurer, canada mortgage and housing corporation, has an explicit sovereign guarantee and is the largest insurance provider. lenders relying on private mortgage insurers receive a government guarantee for losses ( from insurer failure ) on amounts above 10 per cent of the original mortgage. with loan - to - value ratios of over 80 per cent. all borrowers must satisfy an incomes test, and insurance premiums vary with loan - to - value and amortization periods. leading up to the crisis, the principal - agent problems that developed in originate - to - distribute models were absent in canada. banks largely retained the risks of their underwriting, maintained their standards, and held onto credit skills. most mortgages originated by banks were for their own balance sheets and, as a result, underwriting standards remained high. banks obtained natural geographic diversification of their loan portfolios through their nationwide branch system, which eliminated one motivation for securitization. only about 30 per cent of mortgages in canada are securitized. moreover, securitization in canada is dominated by government - guaranteed mortgage - backed securities ( about 85 per cent pre - crisis ). as a consequence, the mortgage - backed security market in canada continued to function well during the crisis. other private - label securitization markets were less developed. similarly, there was little usage of credit default swaps to hedge canadian corporate risk. with exposures largely staying on balance sheet, canadian bankers remained bankers rather than warehousers or traders. consider what happened elsewhere. the severing of the relationship between originator and risk holder lowered underwriting and monitoring standards. in addition, the transfer of risk itself was frequently incomplete, with banks retaining large quantities of supposedly risk - free senior tranches of structured products. these exposures were compound

##secured interbank transactions and short - term repos. for example the repo market in canada is one - fifth the size of other jurisdictions and the commercial paper market is relatively small. in contrast, short - term money markets were the predominant source of financing for the one - third increase in the gross leverage of u. s. investment banks, u. k. banks and european banks. it is a simple fact that banks ’ reliance on wholesale, collateral - based finance rose from $ 200 billion to a peak of $ 4 trillion during this decade. by borrowing in short - term wholesale markets to fund asset growth, banks became more dependent on continuous access to liquidity in money and capital markets. the system ’ s exposure to market confidence was enormous. moving forward : what else is required? the collapse in confidence necessitated a host of extraordinary measures and bank rescues. a common motivation was fear of contagion through bilateral counterparty relationships in funding and derivatives markets. with u. s. investment banks at the hubs of so many crucial markets, such as tri - party repos, the system was profoundly fragile. ultimately, the historic g - 7 commitment to use all available tools, including public capital, to support systemically important financial institutions and prevent their failure was necessary to keep the system functioning. the cost has been enormous moral hazard that, if left unchecked, will distort private behaviour and inflate public costs. a series of concerted measures will be required to build resilient, continuously open funding and derivatives markets and to restore market discipline to financial institutions. keeping markets continuously open requires policies and infrastructure that reinforce the private generation of liquidity in normal times and facilitate central bank support in times of crisis. the cornerstones are central clearing counterparties or “ ccps ” for repos and otc derivatives. properly risk - proofed ccps act as firewalls against the propagation of default shocks across major market participants. through centralised clearing, authorities can also require the use of through - the - cycle margins, which would reduce liquidity spirals and their contribution to boom - bust cycles. to develop a robust, collateral - based, short - term financing market, the bank of canada is supporting the creation of a domestic ccp for canadian - dollar repos. the bank is working with its domestic and international partners to develop a similar infrastructure for otc derivatives markets. current g - 20 efforts to transfer standardized otc derivatives to clearing houses have great potential