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Remarks by Tim Lane Deputy Governor of the Bank of Canada Winnipeg CFA Society Winnipeg, Manitoba 22 June 2010 The recent past has underscored the fact that, in finance and the economy, most things are interconnected on a global scale. Throughout its history, Canada has been powerfully affected by events elsewhere. Manitobans in particular are well aware of this reality. Waves of immigration, rapid changes in commodity prices, the Great Depression, two World Wars, and technological advances "“ all have had an enormous impact here. More recently, the global financial crisis has been a stark reminder that everyone "“ even citizens in countries with sound "fundamentals" "“ is affected by major shocks, regardless of where those shocks originate. Global realities and their impact on the domestic financial system inform much of the Bank of Canada's most recent issue of its Financial System Review (FSR), which was published yesterday. In the FSR, the Bank identifies and evaluates risks and vulnerabilities in the financial system. Our goal in doing this is to contribute to the long-term resiliency of the Canadian financial system by promoting informed discussion of various relevant issues and developments. In my remarks today, I'd like to discuss two issues that are discussed in the FSR, which, directly or indirectly, pose risks to financial stability. These issues are sovereign debt and global macroeconomic imbalances. Both are "global" issues, but they will have to be managed at the national, as well as the international, level. As such, they are at the core of ongoing G"“20 discussions, including those taking place this week in Toronto. I'll start by taking a very brief look at the Canadian economy "“ where we are now, and where we appear to be headed. Then, I'll elaborate on the two issues I've identified. I'll welcome comments and questions at the end. The Canadian Economy The global economic recovery is under way, but it is an uneven one. In the emerging-market economies, growth has been vigorous "“ indeed it has been stronger than we expected a few months ago. At the same time, in most advanced economies, the recovery has been subdued and heavily dependent on the exceptional stimulus provided by monetary and fiscal policies. In recent months, concerns over European sovereign debt have dampened prospects for the recovery in Europe. So far, these concerns have had limited effects on Canada "“ mainly, a modest fall in commodity prices and some tightening of financial conditions "“ but they are an important risk to the recovery. In Canada, the economic recovery is proceeding somewhat more rapidly than expected. Growth has been very strong in the past two quarters, although we expect it to moderate, starting this quarter. Several factors have been supporting the recovery: fiscal and monetary stimulus, improved financial conditions, the rebound in global economic growth, more favourable terms of trade, and increased business and household confidence.

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