Following is the text of a speech Bank of Canada Governor Mark Carney was giving in Montreal on Thursday:

Introduction It is a pleasure to be here at this important meeting. It comes at a critical time, as we all work to repair a global financial system that has failed our citizens. Given this failure, the G-20's agenda to reshape the global financial system is comprehensive and radical. The coming weeks and months will be pivotal to its success. The time for debate and discussion is drawing to a close. Policymakers now need to decide and to implement. Recent tensions in Europe have underscored this urgency.

Market volatility over the past couple of months has reflected both macroeconomic forces and heightened regulatory uncertainty. A flurry of tangential proposals has sown confusion about the focus and intent of regulatory reform. Could taxation and regulatory fiat really address Too-Big-to-Fail? Are markets part of the problem or part of the solution? This past weekend in Busan, South Korea, G-20 finance ministers and central bank governors refocused on the core reform agenda of capital, resolution, and market infrastructure. Later this month in Toronto, G-20 leaders can be expected to harden that resolve.

Today, I would like to focus on the G-20's core agenda, whose objective is to create a more resilient, global financial system. I will begin by discussing the nature of systemic risk and then move to the three principal strategies to mitigate it: increasing the resiliency of financial institutions; enhancing the robustness of financial markets; and reducing the interconnectedness between institutions and between institutions and markets. IOSCO is an important contributor to the G-20 process. We share a common purpose. Reducing systemic risk is at the heart of the IOSCO principles. Your ongoing efforts to enhance investor protection and market integrity will also serve to build a more resilient financial system.

Systemic Risk Systemic risk is the probability that the financial system will not function as needed to support economic activity. Mitigating systemic risk is challenging because it requires identifying the essential elements of a complex, modern financial system. What is essential changes as the system evolves. In reducing some aspects of systemic risk, policy-makers will undoubtedly increase others. As a consequence, we will need to remain vigilant in the years that follow the initial burst of reform.

A fully risk-proofed system is neither attainable nor desirable. The point is not to pile up so much capital in our institutions that they are never heard from again, either as a source of instability or of growth. The challenge is to get the balance between resiliency and efficiency right. The global financial crisis exposed the fallacy of composition that strong individual financial institutions collectively ensure the safety and soundness of the system as a whole. Even the most vigilant, microprudential regulatory regime can be overwhelmed by systemic risks.

As a consequence, policy-makers now recognise that systemic risk is the product of the resiliency of financial institutions, the robustness of systemically-important markets; and the interconnectedness between institutions and markets. At its heart, the resilience of markets and institutions is a function of solvency and liquidity. As evident in the recent crisis, uncertainty about the solvency of financial institutions causes markets to become illiquid, and illiquid markets can cause otherwise solvent institutions to become insolvent. However, while solvency and liquidity are related, the responsibility for each ultimately falls to different agents.

The risk of insolvency should, fundamentally, be a private concern, just as the return is appropriated by private agents. It is the job of regulation to ensure that is the case. On the other hand, liquidity is a social good, as it facilitates exchange between institutions. While individual institutions are responsible for managing their own liquidity to buffer idiosyncratic shocks, and liquidity should be endogenously created by private agents in most states of the world, the ultimate provider of liquidity to the financial system is the lender of last resort-the central bank.

But the crisis has revealed that liquidity is not just a central bank's responsibility. It is now clear that a robust financial system requires the co-operation of all financial regulatory bodies, since illiquidity can be triggered by the insolvency of a single institution, shoddy infrastructure, or poor transparency. The more successful policy-makers are in ensuring that liquidity generation is robust, the more efficient we can be with respect to the amount of capital required to protect against that risk.