Thursday, March 13, 2008
Mark Carney, Governor of the Bank of
Canada, speaks before the Toronto
Board of Trade on Thursday.
Carney, governor of the Bank of
Canada, gave his stamp of approval
to "difficult" efforts multiple
players have made to hammer out a
deal in the non-bank asset-backed
commercial paper market.
A deal to end the crisis in the ABCP
market was hammered out last
December and the Financial Post
reported earlier today papers are
set to be filed in court this week
seeking a judge's approval of the
implementation of the restructuring
"We favour the process," he said.
"It has been difficult, it has been
complicated, it's taken longer than
people might like but by putting in
place the standstill I think the
major participants" investors, asset
providers, liquidity providers,
agents of the paper " avoided the
fire sale and very low returns for
investors on this paper and set in
place a process which has created
the possibility of substantially
Most importantly investors will get
a chance to vote on the deal, Mr.
"The participants in this process
... Canadian banks, in particular,
and the global bank have made
serious efforts to find a compromise
solution," he said. "That's what you
get in the market; you get a
compromise between various parties."
Mr. Carney said he was not going to
comment on the precise deadline of
the deal as he did not know if it
Mr. Carney made the comments in an
interview with the Financial Post on
Thursday after his first major
speech on Bay Street in Toronto.
At a press conference after the
speech, Mr. Carney said the
securities that will come out of the
restructuring are unlikely to meet
criteria the bank has set out as it
considers accepting ABCP as
collateral under its proposed new
The non-bank ABCP has been frozen
since August after the U.S. subprime
market blew up and financiers were
unable to roll the paper over to new
customers and return cash to
existing shareholders. Court
approval would negate possible legal
action and should smooth the way for
issuing investors new notes and
creating a secondary market in the
The ABCP deal would allow the
Canadian market to at least
partially avoid some of the "mark to
market" issues that has been
bedeviling global credit markets as
banks try to get a handle on the
extent of the subprime taint on
their balance sheets.
Markets are so illiquid a lot of
securities are being sold at
ridiculously low prices, which is
creating a vicious cycle of forced
In his speech Mr. Carney noted some
have questioned the utility of
requiring mark-to-market valuations
of all assets and liabilities on a
corporate balance sheet.
"The point can be made that, in the
current circumstances, existing
accounting rules provide a degree of
precision that is not warranted," he
said in his speech.
Later in the interview he added he
did not think accounting rules
should be suspended in the middle of
the game but that investors should
should use them intelligently.
"People are marking products
relative to some distressed index,"
Investors need to make clear
judgments on the value of their
securities and have sufficient
information to do so.
Mr. Carney said he expected
turbulence in financial markets to
continue for some time but had
confidence in the health of Canadian
"It's very robust," he said. "Not
surprisingly at times of heightened
uncertainty and global financial
market volatility we refresh our
opinions regularly with respect to
that and we are very comfortable
with Canadian institutions."
Although credit conditions have
tightened since August for consumers
but it has not been severe in
"Availability of credit to
households remains quite active," he
said. "Household credit continues to
grow at double-digit levels."
Mr. Carney said he favoured more
competition in the Canadian
"The issue is what's the optimal
number of domestic and foreign
entrants into the market to have an
appropriate degree of competition,"
he said. "There's value in foreign
competition, no question."