Finance committee  In terms of the U.S. financial institutions, as I think you may be aware, the Federal Reserve, in conjunction with the regulators, conducted a thorough stress test of the 19 largest institutions in the United States earlier this year, and that revealed capital requirements consistent with a further severe recession between now and the end of 2010.

Finance committee  We agree with that, in fact. Yes, they did.

Finance committee  For the purposes of this exercise I will agree with that.

Finance committee  I would hedge my answer on that. As you well know, definitions of recession and recovery based simply on GDP are a little unrepresentative. There are broader factors, like industrial production, unemployment, etc.

Finance committee  Could we get a ruling on that? I think in the fullness of this experience of the recession and the recoveries, and the amount of time it takes for economies to return to their previous path of potential growth, it is likely that Canada will return to its path of potential more quickly than the other crisis-affected economies, including the two European countries you mentioned.

Finance committee  I would say simply that what matters for the bank is where the currency is and where all other domestic and external factors are and the totality of their impact on aggregate demand and therefore inflation in Canada. And obviously our terms of trade, prices of commodities, are one of the external factors that matter.

Finance committee  Again, partially there is a question of speed and impact through confidence, as a channel, but that needs to be brought into the broader analysis.

Finance committee  Thank you for the question, Chair. Very briefly, one of the issues in the crisis was that a series of institutions had to be saved. The judgment of the relative authorities was that it had to be saved because their failure would have seized up further broken-down markets and brought down other institutions because they were so interconnected.

Finance committee  It would--

Finance committee  One of the issues with Lehman Brothers, Bear Stearns, and other major institutions when they fail was that institutions didn't know which other institutions that were trading with Lehman Brothers had just lost a lot of money because Lehman failed. That made everybody suspect and that made everybody pull back.

Finance committee  I'll answer very quickly so you can have another question. We knew beforehand about specific institutions having problems--that's what I was referring to. But on your projection point, the revision from 3% to 2.3% is almost fully explained by Statistics Canada revising the Q1 numbers.

Finance committee  The first thing I would say—and maybe I'm biased on this—is that the broad brush of our projection has been proven correct. We came here in January this year and said we expected a recovery to begin in the second half of this year, driven largely by the stimulus that has been put in place.

Finance committee  There are risks on both sides for this recovery, absolutely. Certainly there are significant risks that come from abroad, on both sides, and risks in the United States. So there are upside and downside risks. What we have said about the labour market, and it's very early days, is that there were some early signs of stabilization in the Canadian labour market.

Finance committee  No, that's fine. Mr. Bernier is right, of course. There are both positive and negative consequences when you have a strong dollar. What matters is how the exchange rate, combined with all the other internal and external factors, impacts overall demand and inflation in Canada. That is what determines the Bank of Canada's monetary policy.

Finance committee  We are starting to see the impact, yes.