Global financial reforms essential: Poloz

Global financial reforms have made the financial system safer, said Bank of Canada Governor Stephen Poloz in a speech today in New York.

Still, regulators have to develop rules that don’t stifle industry innovation, he adds, noting we have to strike a “balance between maintaining financial stability, […] and facilitating competitive market forces.”

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He didn’t predict how the financial system would evolve, but mentioned one risk of clamping down on institutions may be the reduction of available credit. For example, there may be fewer loans available for startups, and small- and medium-sized companies.

Reforms do have side effects and they cost money, says Poloz, but these pale in comparison with the costs of the financial crisis. “We are still paying for that,” he adds. “Global regulatory reform was absolutely essential.”

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Due to financial reforms, the BoC expects “[monetary] policies will need to remain stimulative until the legacy headwinds subside, and until the rebuilding phase truly [begins].”

As a result, the economy could remain stagnant for another two year, says Poloz. After that, he predicts steady growth and inflation that’s sustainably on target.

Read: Slow but steady for the BoC: Poloz

However, he notes, this won’t “happen without vigorous and innovative financial intermediation. We need to embrace our new regulatory architecture.”

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