The agencies in charge of the regulation of our financial industry have failed.
They have performed miserably, almost worse than any part of our government, and are responsible to a great extent for the current economic downturn.
The many conflicting objectives among the big firms operating in this field have served to protect vested interests; they have repeatedly blocked the reforms needed. Also, the bureaucracy has been complicit in shielding that sphere from any required changes.
Given that, what should be done now? There first of all must be more supervision of the safety and soundness of the firms operating in the financial field. Bank holding companies, insurance companies, hedge funds, and housing finance agencies, must be placed under a new “umbrella.” Those different institutions have been subject to the jurisdiction of different agencies in too many instances. As a result, a great deal of unscrupulous behaviour has fallen through the cracks.
There are securities commissions in place in each of the provinces, but they have been very weak, and much of the activity in the financial field takes place in several provinces, so one province alone usually is powerless.
Hence, there is a real need for a separate, national agency to protect investors and be accountable for the markets in which stocks, bonds, futures and the like, are traded. For instance, credit default swaps, derivatives, and in some cases, options have been exempt from regulation. Those and other innovations must be reviewed and placed under control.
Politicians have been reluctant to tackle all of that because of political pressure and lobbying by those who object to any interference. A change is long overdue; political leaders must be willing to take on this problem.
Then too, there should be a new organization to place the entire financial system in government’s bailiwick. It should have leeway to gather information from all other regulators or from any financial institution. Also, it should have the authority to take what steps are necessary to reduce systemic risks. If liquidity (more funds) were required for the markets to function properly, it then should be able to call on the government for a rescue operation.
It has become obvious then that the Bank of Canada should serve as the day-to-day overseer of major financial institutions.
Only it would have the clout to do so. Many financial scandals have developed because of the belief that government outlays will help with a rescue operation. That has led to big-time “game playing,” and major corruption.
The Bank of Canada should set guide lines to correct that misguided faith.
All of this would not prevent future economic crises like the one that has beset us now. However, if the current benign neglect were replaced by expanded regulation and additional structures were put in place, future troubles certainly would be diminished.