their exports to the prices that they pay for their imports - have improved by about 14 per cent since late 2001. this has contributed importantly to higher real incomes and stronger domestic demand. how has the canadian economy been adjusting to these various economic forces? in the bank's last monetary policy report, published in april, we noted that we have seen increased business investment spending in oil and gas extraction, in other mining activity, and in wood - product manufacturing. these sectors are benefiting from higher world prices for their products. we are also seeing rising investment in sectors that are not very exposed to international trade, such as electric power generation, finance and insurance, and information and cultural industries. in these latter cases, firms are reacting to strong growth in domestic demand. we've also had very strong investment in housing. but in other sectors that are highly exposed to international trade, prices are either falling or are rising very slowly. here, i am referring to goods - producing sectors, such as auto parts, furniture, and clothing manufacturing, as well as service sectors such as tourism. firms in these industries are feeling the pressure of the higher canadian dollar, and they are also facing increased competition from other regions of the world. the good news is that many canadian firms are making the necessary adjustments. investment spending is being directed towards increased specialization, higher productivity, and lower costs. since much of the productivity - enhancing machinery and equipment is priced in u. s. dollars, the stronger canadian dollar has made it easier for firms to invest in equipment that boosts productivity. stiffer competition is also encouraging firms to seek new markets, increase their specialization, and offer more value - added, customized services. other adjustments are also taking place. a growing number of firms are looking to cut costs by importing more inputs. we've certainly seen this type of adjustment taking place among manufacturers of telecommunications equipment. other firms are phasing out the production of goods and services with low profit margins and concentrating on those that yield higher returns. current economic developments in canada and manitoba through its monetary policy, the bank is helping these adjustments by supporting domestic demand. in our april monetary policy report, we projected that domestic demand would grow by almost 4 per cent in 2005. according to recently released data, it grew by slightly more than expected during the first quarter of the year. so we continue to see evidence that strong domestic demand is offsetting the smaller contribution that net exports are making to economic growth. on 14 july, we

william c dudley : the us financial system – where we have been, where we are and where we need to go remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the reserve bank of australia ’ s 50th anniversary symposium, sydney, 8 february 2010. * * * today, my remarks will focus on the u. s. and global financial systems : • what went wrong to produce the worst financial crisis in the past 70 years? • where are we now? • what should be our top priorities to ensure that this never happens again? as always, my views are my own and do not necessarily reflect those of the federal open market committee or the federal reserve system. with respect to what went wrong, it is important to recognize that the financial crisis occurred for a host of reasons and, thus, there is no single silver bullet to avoid such crises in the future. at the heart of the crisis was a tremendous buildup in leverage, which our regulatory framework failed to prevent. large amounts of opaque, illiquid, long - term assets were financed by short - term liabilities, and much of this financing occurred in the shadow banking system. when the housing bubble burst, financial asset prices fell and exposed the deep linkages and overall fragility of our system. interbank funding markets seized up, the shadow banking system crumpled and several major financial firms – banks and nonbanks alike – collapsed or approached the brink of collapse. extraordinary interventions of governments and central banks around the world were necessary to prevent a complete collapse of the financial system and the broader economy. as a general matter, regulators did not appreciate beforehand how vulnerable the system was to shocks. in particular, there was a failure to appreciate the important interconnections among the banking system, capital markets, and payment and settlement system. for example, the disruption of the securitization markets caused by the poor performance of highly rated debt securities led to significant problems for major financial institutions. these banks had to take assets back on their books, backstop lines of credit were triggered, and banks could no longer securitize loans, thus increasing the pressure on their balance sheets. this reduced credit availability, which increased the downward pressure on economic activity, which caused asset values to decline further, and in turn, increased the degree of stress in the financial system. moreover, regulators did not adequately understand how the dynamics of the system tended to exacerbate shocks, rather