Reuters: Regulatory News: Ex-Bank of Canada boss urges crisis policy changes

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Ex-Bank of Canada boss urges crisis policy changes May 22nd 2012, 17:34 Tue May 22, 2012 1:34pm EDT * Ex-central bankers push macro-prudential policy committee * Say Canada's past success no guarantee of future * Panel would take responsibility for system-wide risks * Responsibility would shift from minister By Randall Palmer OTTAWA, May 22 (Reuters) - Canada must improve its monitoring and prevention of systemic financial crises stemming from such things as housing bubbles and overly exuberant lending practices, former Bank of Canada Governor Gordon Thiessen said on Tuesday. To deal with such macro-prudential risks, Thiessen and former Senior Deputy Governor Paul Jenkins said in a paper that a new policy committee should be set up, which would be chaired by the central bank chief and include the heads of other agencies. Such a move would shift responsibility for system-wide risks to the committee from the minister of finance, though the committee would report to the minister and the minister would have limited authority to override it in extreme circumstances. Thiessen and Jenkins noted that Canada has coped better than most countries with the strains of the past four to five years, which included sovereign debt problems in the euro zone and the United States. "(Canada's) system of regulating and supervising financial institutions has been held up as a model of good performance. But this focus at the institutional, or micro-prudential, level is not enough," the two men said in their paper, published by the C.D. Howe Institute.[] "Future crises...undoubtedly will have different antecedents than the last one, and we need to be sure that Canada's financial system will be equal to the task of dealing with them as they arise." They pointed to a new Financial Stability Oversight Council in the United States chaired by the treasury secretary; the European Systemic Risk Board, headed by the European Central Bank president; and a Financial Policy Committee in the Bank of England. "Other major countries have already put in place formal macro-prudential arrangements. Canada needs to act soon," they said. The former central bankers said the committee they recommend would require legislation to formally assign it responsibility. Its members would include the Bank of Canada governor, the deputy finance minister, the Superintendent of Financial Institutions and perhaps the president of the Canada Deposit Insurance Corp. Asked to comment, Bank of Canada spokesman Jeremy Harrison said: "The minister of finance has ultimate responsibility for the overall stability of the financial system. A system-wide, or macro-prudential, approach is operationalized by the Department of Finance and the federal financial regulatory authorities, including the Bank of Canada, the Office of the Superintendent of Financial Institutions, and the Canada Deposit Insurance Corporation." Harrison added: "These authorities work in close cooperation." Link this Share this Digg this Email Reprints

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