and coordinate contingency plans. fourth, modifications resulting from system or regulatory changes that have the potential to disrupt year 2000 programs should be limited. it is important that firms carefully manage the risks associated with making changes to their internal information systems in 1999 and early 2000. firms should avoid introducing new it applications that could generate changes to critical business applications that have been renovated, tested and certified. the federal reserve in october 1998 implemented an internal change management policy that restricts system changes to those deemed absolutely critical. similarly, legislatures and regulators should limit legal and regulatory changes that might require resources to be diverted from a financial organization ’ s year 2000 program. before issuing a legal or regulatory change, regulators should consider whether or not the action could be delayed until after 2000. the public ’ s obligations with respect to year 2000 finally, all of us as members of the public have obligations with respect to year 2000. the first is to maintain perspective and rely on common sense. as we get closer to the century date change, there will no doubt be more sensational coverage in the media. our obligation, as always, is to be smart consumers of information and to listen to responsible, not alarmist, voices. remember, as with anything that has a degree of uncertainty, there will always be those who predict the most dire outcomes. they have generally been wrong in the past, and i expect that they will be wrong again. our second obligation is to maintain reasonable and responsible patterns of behavior. there are likely to be some disruptions from the century date change ; nothing this complex can be perfectly faultless. however, we should remember that there have been serious disruptions to service in daily life before, from storms, temporary electrical outages, disruptions of telephone service, etc. in general, these prove to be annoying and inconvenient, but nothing more. finally, we should all recognize that most systems are built to withstand reasonable service demands. if we stress them by changing normal usage patterns, we may experience delays, not because of year 2000 problems, but rather due to capacity overload. conclusion i believe that the financial services industry has made great progress in addressing year 2000 issues. i am cautiously optimistic that the united states and the global economy will weather the century date change without major disruptions to economic activity. during this next year you will not only need to do your best to continue to repair and test your own systems, but will also need to evaluate the risk of potential failures and the effect of

speeches over the past year, the risk of recession has diminished in canada and globally. inflation in most economies has come down, and inflation targets are in sight. however, there could be volatility in markets as expectations shift about when and by how much central banks will lower their policy rates. and there continue to be important geopolitical and economic risks on the horizon. against this backdrop, households and businesses continue to adjust to past interest rate increases. some indicators of financial stress have risen. at the same time, the valuations of some financial assets appear to have become stretched. this increases the risk of a sharp correction that could generate system - wide stress. the recent rise in the use of leverage in the non - bank financial sector could amplify the effects of such a correction. what's most important is that to properly manage risks, financial system participants need to remain proactive. and financial authorities need to remain vigilant. let me now pass things over to carolyn. thank you, governor. let me touch on each of the sectors we cover in the fsr. i'll start with households. so far, most households have proven resilient in the face of higher interest rates and inflation. overall, we've seen households adjusting to higher debt - servicing costs. this does not mean the adjustment has been easy. clearly, there are individuals and families who are feeling very stretched. what we're evaluating in the fsr are the indicators of overall stress in the system. some of the indicators of household financial stress that fell during the pandemic are back to or above normal levels. survey data suggest renters are experiencing the biggest increase in financial stress. after hitting historical lows during the pandemic, the share of households without a mortgage that are behind on credit card and auto loan payments has come back up to - or surpassed - typical levels. and over the past year, the share of borrowers without a mortgage who carry a credit card balance of at least 80 % of their credit limit has continued to climb. among mortgage holders, indicators of financial stress have remained relatively low even as many have been coping with higher mortgage payments. since the bank began raising its policy rate in march 2022, payments have increased for roughly half of all outstanding mortgages. over the next two and a half years, most of the remaining mortgages will renew, and these borrowers are likely to face relatively larger payment increases. at the same time, many mortgage