By Theophilos Argitis and David Scanlan
April 24 (Bloomberg) -- Canada will tighten securities regulation to
force more disclosure by financial institutions about their investments
after record write-downs by the country's biggest banks, Finance Minister
Jim Flaherty said.
Canada's finance minister, speaks during an interview in New
York, April 23, 2008. Photographer: Andrew Harrer/Bloomberg News
The measures, which Flaherty said he'll discuss with bank executives on
April 28, may be implemented as soon as this year and will include plans
for a single, nationwide securities regulator. The changes will force
banks to be more transparent about their holdings and improve risk
management, Flaherty said in an interview yesterday in New York.
"I genuinely do plan to discuss with the bank CEOs on Monday the
development of our plan to tighten regulation,'' said Flaherty. "This is
a time where it is going to be necessary to have more stringent
Canada is joining other Group of Seven countries in increasing oversight
after Canadian banks posted combined investment losses of C$7.5 billion
($7.5 billion) and a portion of the country's commercial paper market
G-7 policy makers on April 11 urged financial companies to use their
mid-year earnings reports to "fully'' disclose any investments at risk
of a loss, after global banks posted combined losses and writedowns of
more than $300 billion from credit markets. Firms should establish "fair
value estimates'' for complex assets that investors have shunned, and
boost capital as needed, the group said.
Canadian Imperial Bank of Commerce, the country's fifth- largest bank,
has taken C$4.13 billion in pretax writedowns in the last year for
losses on investments tied to U.S. subprime mortgages. Bank of Montreal,
the fourth-largest Canadian bank, has had writedowns and natural gas
trading losses of about C$1.66 billion.
"Something's gone wrong here, and everybody has to sit back and assess
what it was, and try to avoid it in the future,'' said Brad Smith, a
bank analyst at Blackmont Capital Inc. in Toronto.
The nation's capital markets also have been shaken by the collapse of
the market for non-bank asset-backed commercial paper. A group of
institutional investors have spent seven months on a plan to restructure
C$32 billion of the commercial paper that stopped trading in August, and
a vote is set to take place tomorrow.
At least 2,000 investors, including retired hog farmers, teachers and
flight attendants, are among holders of the debt, which was placed in
bankruptcy protection last month in the largest restructuring ever in
Flaherty said he's "hopeful'' investors will approve a plan to convert
the 30-day to 90-day debt into new notes maturing in nine years.
One element to shoring up the country's financial markets is
establishing a common securities regulator, Flaherty said. He said a
national regulator may be set up as early as next year, to replace the
13 provincial agencies that monitor the industry in Canada.
He declined to say what he would do if he couldn't get all provinces to
agree to the changes. Provinces including Quebec are opposed to a
"This is not something with respect to which we can dawdle, given what's
been going on in capital markets,'' Flaherty said in the interview,
adding the country's multiple regulators are undermining efforts to set
up free trade in securities with the U.S.
The Bank of Canada this week cut its 2008 growth forecast to 1.4 percent
from a January prediction of 1.8 percent. Flaherty said slowing growth
won't trigger a budget deficit and signaled he's prepared to trim
spending and buy back less debt to protect the surplus.
"We will have sufficient economic growth that we will be OK on the
revenue side, OK on the expense side, and if we have to be more
restrained on the spending side, that can be done,'' he said. "The
Canadian consensus now is that all governments should run balanced
budgets and I intend to do that.''
Flaherty's last budget in February said the economy would grow 1.7
percent this year, and predicted a C$2.3 billion surplus for the fiscal
year that started April 1, the smallest since 2004.
"We build in a cushion in our budget, so I'm confident overall we will
be OK,'' Flaherty said. "We will have positive economic growth in
Canada has benefited from a global commodities boom that allowed the
government to reduce the national debt by almost C$100 billion since
1997 even as spending rose. No other G-7 country has run surpluses for
"We build in a surplus. We build in some for debt repayment,'' with a
current target of C$3 billion a year, he said. "In a given year we might
reduce it by less and we can still be on average over a period of time.
In fact, right now, we're way above average.''
Finance chiefs from the G-7 this month signaled concern about the
dollar's slide and said the global economic slowdown may worsen.
"Certainly some have the view that the U.S. dollar is undervalued,''
said Flaherty, who attended the meeting. He declined to say whether he
shared that view.
To contact the reporter on this story: Theophilos Argitis in Ottawa at
firstname.lastname@example.org; David Scanlan at email@example.com
Last Updated: April 24, 2008 00:00 EDT