Wednesday, January 21, 2009

Canadian ABCP crisis: a disaster waiting to happen

Editorial by Jean St-Gelais, President and CEO, Quebec Autorités des marchés financiers, in the Globe & Mail's StreetWise:

To state that "the asset-backed commercial paper collapse might well have been prevented" if the recommendations of the Hockin report had been in place in 2007 is simplistic (National Unity For Capital Markets - editorial, Jan. 14). And to pretend that "if there had been a single national securities commission in Canada with a principles-based approach ... the Caisse de dépot et placement du Québec ... might not have suffered grave losses on ABCP" is an indication of a poor understanding of the basic functioning of capital markets.

Britain and the U.S. are seriously affected by this financial crisis. Yet the U.K. has a single securities regulator, and we all know that the subprime mortgage crisis in the U.S. ignited the global credit turmoil that began in the summer of 2007.

The whole Canadian ABCP market froze in August, 2007. The "Canadian-style" liquidity provisions based on the OSFI guideline B-5 created a situation where the foreign banks and non-bank liquidity providers refused to provide liquidity and this market in Canada ceased to operate. Could it have been avoided?

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