Ex-Bank of Canada boss urges crisis policy changes
By Randall Palmer
OTTAWA (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 a former central bank 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.
The Department of Finance, however, said the minister was well-briefed on risks to the financial system by the Senior Advisory Committee, a discussion forum that includes members of several government agencies, including the Bank of Canada head.
"This approach has worked well for Canada," said a finance department official, speaking on condition of anonymity.
Thiessen, who headed the central bank from 1994 to 2001, 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 U.S. subprime mortgage crisis.
"(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.<here>
"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." Continued...