Addressing Financial Market Turbulence



    TORONTO, March 13 /CNW Telbec/ - More than seven months after financial
market turbulence began, policy-makers and market participants are entering a
new phase, where shortcomings in the current system are better understood and
improvements are beginning to be made, Bank of Canada Governor Mark Carney
said today in a speech to the Toronto Board of Trade.
    In his remarks, Governor Carney discussed three of the most significant
factors behind the market turbulence: liquidity; a lack of transparency and
inadequate disclosure; and a series of misaligned incentives that encouraged
excessive risk taking. Recent events have revealed serious and widespread
shortcomings that need to be addressed promptly, completely and credibly, the
Governor said.
    Governor Carney outlined some of the responses to these factors. First,
officials in many countries have been working to strengthen and modernize
their liquidity arrangements where necessary. As announced earlier this week,
the Bank of Canada engaged in the coordinated provision of liquidity with
other major central banks. As well, the Bank plans to expand the list of
collateral that it will accept in open market buyback operations, and it
welcomes the Federal government's proposals to amend the Bank of Canada Act to
modernize the Bank's authorities to support the stability of the financial
system.
    The Governor noted that authorities around the world are encouraging
financial institutions to promptly and fully disclose valuations of structured
products. In this regard, he highlighted some issues pertaining to
interpretations of fair value accounting. There are indications that market
participants are learning the appropriate lessons, realigning incentives, and
changing their behaviour, the Governor said.
    The turbulence has highlighted the importance of sound monetary policy,
Governor Carney concluded. "At a time of great uncertainty, it is more
important than ever that monetary policy act as a stabilizing force," said the
Governor.
    "This underscores the importance of keeping inflation low, stable, and
predictable. This means that the Bank will continue to watch developments in
the real economy for their impact on inflation."




For further information:

For further information: Jeremy Harrison, (613) 782-8782


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