April 9, 2008 / 1:50 PM / 10 years ago

Canada to G7: let markets solve credit crisis

OTTAWA (Reuters) - Canada agrees with recommendations for solving the global credit crisis that will be put forth at a Group of Seven meeting this week, and will push for a market-led approach to regulatory reform, officials said on Wednesday.

<p>Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa March 31, 2008. REUTERS/Chris Wattie</p>

Finance Minister Jim Flaherty said there were some differences of opinion among G7 officials on some of the 65 recommendations contained in the report by the Financial Stability Forum, a body that the G7 asked to draft a report on the causes of the current global credit turmoil and propose recommendations for averting future market breakdowns.

The report will be discussed by Group of Seven finance ministers and central bank governors at a meeting in Washington on Friday.

Flaherty, a Conservative, resisted any idea of government-imposed regulatory reform, saying he preferred solutions spawned by market players.

“Clearly our preference is for private-sector resolutions,” he said.

“A lot of the recommendations (in the FSF report) are just that, they’re about authorities within countries that ‘ought to’ or ‘should’ or ‘could’ do things,” Flaherty told reporters.

“I expect there will be an emphasis by some of the ministers ... that there should be more strength in some of the recommendations ... I expect the recommendations of the FSF, perhaps amended somewhat, will be adopted by the ministers and the central bankers.”

Flaherty’s comments are in line with those of the Institute of International Finance, a top global financial services association, which on Wednesday proposed tougher standards for the banking industry but suggested self-policing as the best route to get there.

One of Canada’s top bankers, Scotiabank Chief Executive Richard Waugh, will join G7 officials and other global bankers in a dinner meeting on Friday to share views on the most effective policy responses to the market turmoil.

Waugh, co-chair of the Market Best Practices Committee of the IIF, railed against a top-heavy crackdown on financial institution practices, saying this had failed in the past.

“If history tells us anything, the next crisis will be different, and prescribed rules will probably not have recognized where it’s coming from,” he told reporters.


In the short term, perhaps the measure that will most restore confidence in shaky markets will be an agreement for banks to continue improving their disclosure of toxic assets and to adopt common methods for pricing these assets, a senior Canadian finance official said.

Earlier on Wednesday, Flaherty held up Canada’s plan to fix up C$32 billion worth of frozen asset-backed commercial paper, known as the Montreal Accord, as an example that could help other countries deal with broken-down credit markets.

“It certainly is one way of doing it that looks like it’s going to be successful, so that’s a reason why it’s being looked at by others,” he said.

The finance official, who spoke on condition of anonymity, said that while a cohesive global response to the financial market disruption is needed, each country must calibrate a specific policy response to its own situation.

Canada’s banks remain well-capitalized but that does not make them immune and so Canada must also participate in the move toward regulatory reform, starting with the creation of a common securities regulator, he said.

Reporting by Louise Egan; Editing by Peter Galloway

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