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In this issue of the Financial System Review, the Bank of Canada’s Governing Council judges that the risks to the stability of Canada’s financial system are high and have increased markedly over the past six months, owing primarily to an escalation of the sovereign debt crisis in the euro area and a weaker global economic outlook.

Erratum: The data for Chart 7 on page 8 were plotted incorrectly. See revised chart.

Quarterly Financial Report - Third Quarter 2011 - For the period ended 30 September 2011

This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

The Bank projects that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012 and 2.9 per cent in 2013. Total CPI inflation is expected to trough around 1 per cent by the middle of 2012.

The survey results point to an overall easing in business-lending conditions during the third quarter of 2011. The balance of opinion of both the price and non-price aspects of business lending eased during the quarter.

Responses to the autumn survey point to less optimism among firms than in the summer survey. Indicators of future business activity, capacity constraints and price pressures have all moved down from the levels recorded in the previous survey.

Quarterly Financial Report - Second Quarter, 2011 - For the period ended 30 June 2011

This special issue, “Real-Financial Linkages,” examines the Bank’s research using theoretical and empirical models to improve its understanding of the linkages between financial and macroeconomic developments in the wake of the recent global financial crisis.