[Recorded by Electronic Apparatus]
Tuesday, October 3, 1995
.1533 
[English]
The Vice-Chairman (Mr. Telegdi): The meeting is called to order.
We're happy that you are here. In terms of efficiency and saving dollars and getting the most for our resources, we should try to make it here on time. Then we can start on time and we won't get into any bad habits of starting meetings late.
We have a vote coming up. The bells are going to go at 5 p.m., so I imagine that by about5:10 p.m. we should be heading over to the House. This will press us for time, so we're going to try to get through this agenda as efficiently as possible and to make the maximum use of this opportunity.
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We have with us the Auditor General, Mr. Desautels, and Mr. Thompson and Ms Pace from his office. We have Mr. Palmer, Superintendent of OSFI, and Mr. Heyes, Director General of OSFI.
We're going to start off with Mr. Desautels. You'll go for ten minutes. After that, we'll go into questions.
[Translation]
Mr. L. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman.
As you said, I am accompanied by Mr. Ron Thompson and Ms. Crystal Pace. They were responsible for our audit of OSFI's deposit-taking institutions sector - or DTI sector. Incidentally, their next task will be to examine OSFI's insurance and pension sectors. We plan to report the results of this work in late 1996.
It seems quite timely for the Public Accounts Committee to consider the results of our audit of the deposit-taking institutions sector of the Office of the Superintendant of Financial Institutions. Indeed, toward the end of our audit, the government tabled a White Paper setting out certain proposed reforms of the regulatory system.
In June, the government introduced Bill C-100 with provisions flowing from certain of the White Paper proposals. Over the next two years, it will conduct a broader-based overall review of financial institutions legislation in this country. I hope that our findings will be considered by parliamentarians and others as this overall review unfolds.
[English]
As for Bill C-100, our office has, for obvious reasons, a policy of not commenting on legislation currently before the House. As you know, we focus our audits on how policies and programs are implemented; we do not express opinions on political issues that are associated with them.
For example, we would not comment on whether there should be deposit insurance in Canada or whether financial institutions should be regulated in another way.
Mr. Chairman, we regard our audit of the OSFI sector of deposit-taking institutions as among the most technical, sensitive and important assignments that we've undertaken in recent years. We took great care to ensure that we got it right before reporting. Our audit team included one member with 30 years of experience in financial markets. Another had twenty years of experience in financial institutions. We had other senior staff.
We supported this team with an advisory committee composed of seasoned experts in the financial services area. Our advisers included senior executives from some of the country's leading banks and trust companies. They reviewed our findings and supported them.
[Translation]
I would like to comment now on what we found in our audit of the deposit-taking institutions sector of OSFI. Essentially, Chapter 5 has two main messages.
First, despite market stresses over the several years, our sense is that public confidence in the financial services industry has been maintained. However, there are certain weaknesses in the regulatory system that we believe need attention.
Second, although OSFI has made progress on several fronts in strengthening its regulatory practices, OSFI itself needs further strengthening in a number of areas to ensure that it is equipped to handle the challenges of the future.
The system-wide weaknesses that we observed may be grouped under three headings.
First, we found that mandates and responsabilities of key players in the regulatory system were both unclear and uncoordinated. Current initiatives propose a legislative mandate for OSFI, and changes to the mandate of the Canada Deposit Insurance Corporation and to the responsibilities of the Minister of Finance.
However, it is still not clear who has what responsibility for the public policy objectives of stability and competitiveness; what role the Department of Finance plays in the Federal Regulatory System; and how overlapping statutory responsibilities of CDIC and OSFI might be rationalized.
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[English]
Second, we observed that the system is neither as transparent nor as accountable as we believe it should be, both to institutions being regulated and to members of Parliament and the public at large. While some steps have been taken to improve this, much remains to be done.
For example, OSFI could improve accountability to members of Parliament and the public by explaining how the regulatory process works and how it was applied to institutions that have failed - a public post-mortem, if you will. OSFI could improve transparency to the institutions it examines by informing each institution of its risk rating and its ranking opposite its peers.
Third, we could not determine how well the regulatory system has done in ensuring the safety and soundness of deposit-taking institutions while meeting the government's objectives. The reason is that an appropriate evaluation of the system's effectiveness has never been carried out.
Evaluation is a necessary tool for managing results, for accountability and for resource allocation decisions. The aims of evaluation are to find out whether a program or policy serves some useful purpose, to find out what works and what doesn't, and to find out whether you achieved what you set out to achieve and whether the results were worth the costs.
It seems to us that an evaluation of the regulatory system would provide extremely useful input for the review of financial institutions legislation in 1997. Put simply, we believe that the regulatory system should be evaluated, that government policy requires that the system be evaluated, and that parliamentarians have a right to expect that the system will be evaluated.
Moreover, we believe the evaluation should be neither too complex nor too costly to carry out. In fact, given the importance of the industry to the Canadian economy, it's vital to make sure objectives are still relevant and are being met.
[Translation]
In addition to these system issues, we also reported that the Office of the Superintendant of Financial Institutions itself need strengthening in certain areas.
The financial services industry, as you know, is quite dynamic and will likely continue to evolve rapidly in future years. To keep pace with fast breaking developments, OSFI must be able to recognize and respond quickly as conditions of risk change. We believe that to do so, OSFI should shift some if its emphasis away from the more structured annual examinations and toward more flexible monitoring. We understand that OSFI recently took steps to strengthen its monitoring function.
[English]
OSFI's supervisory processes have improved over time. However, there is a need, in our view, for OSFI to develop more precise guidance for examination staff when assessing the seriousness of problems facing institutions or proposing intervention measures.
We see the white paper's guide to intervention for federal financial institutions as an important step in this direction. However, the more precise guidance we have in mind would build on risk factors in the guide, on OSFI's current CAMEL rating system, on the CDIC's standards and on other easily obtainable measures.
To illustrate, the four stages of intervention could be refined and expanded into risk categories. Each risk category could then be linked to recommended actions to be carried out within a given timeframe. These actions would include business activity restrictions, capital infusion requirements, dividend restrictions and ultimately forced closure.
Although the proper exercise of judgment will always be of paramount importance, more precise guidance for triggering early warning mechanisms and for proposing intervention measures would help assure OSFI management, members of Parliament, and the Canadian public that key decisions are made in a uniform and timely manner.
Sound corporate governance is essential within financial institutions to mitigate risk of loss to depositors. We believe OSFI should clarify for deposit-taking institutions what it expects them to do in this regard and then examine or monitor the institutions to ensure compliance with expectations.
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Industry representatives to whom we spoke expressed a keen interest in knowing OSFI's full expectations.
In chapter 5 we also offer a number of other suggestions for strengthening OSFI to meet the challenges that lie ahead. They include more ongoing attention to the study of system-wide and specialized risk areas and more focus on methodology development and training.
While we recognize that the bulk of regulatory costs come from failed institutions, OSFI's own opportunities for efficiency should not be overlooked.
We understand that OSFI has recently improved its organizational structure. However, it could still make other improvements, such as sharing systems with related agencies.
[Translation]
To conclude Mr. Chairman, OSFI plays a crucial role in the financial services industry,Mr. Palmer has initiated a number of actions in recent months to strengthen his organization and the system it functions in. I am delighted that the Public Accounts Committee has chosen our Chapter 5 for consideration today. I look forward to discussing our findings with you and Mr. Palmer in greater detail.
Thank you, Mr. Chairman.
[English]
The Vice-Chairman (Mr. Telegdi): Thank you.
Mr. Palmer.
Mr. John Palmer (Superintendent, Office of the Superintendent of Financial Institutions): Thank you, Mr. Chairman.
I am pleased to appear before your committee this afternoon with the Auditor General and his colleagues to discuss his report on OSFI's deposit-taking institutions sector and how OSFI intends to follow up on the Auditor General's recommendations.
Before I specifically address the Auditor General's report, I'd like to provide you with a brief overview of what OSFI does and the work it carries out.
OSFI's primary responsibility is to regulate and supervise banks, trust and loan and investment companies, life and property and casualty insurance companies, cooperative credit associations, and fraternal benefit societies that are chartered, licensed, or registered by the federal government.
OSFI also supervises some 1,100 pension funds established under federal legislation and provides actuarial reports and advice on various government programs.
In addition, as an agent of CDIC or through federal-provincial arrangements, OSFI supervises provincially chartered institutions.
As the Auditor General points out, OSFI's role has never been formally spelled out. The policy paper entitled ``Enhancing the Safety and Soundness of the Canadian Financial System'', released by the Department of Finance last February, proposed a legislative amendment to provide OSFI with a specific mandate for the first time. As you know, proposals included in that policy paper have been incorporated in Bill C-100, which is presently before the House.
The proposed mandate will clarify OSFI's role in monitoring the health of federal financial institutions, in promoting policies that are designed to monitor and control risk, and in taking steps promptly to deal with problem financial institutions while ensuring that steps are taken by the institutions themselves.
OSFI's role begins with the premise that supervisors cannot prevent failure and that in fact only the management and the board of directors of a financial institution can do so. The regulatory emphasis is to preserve financial discipline and encourage corporate solutions, and on timely intervention and on early resolution of problems in order to minimize losses to depositors, policy-holders, and creditors.
To facilitate this, under Bill C-100 OSFI would receive some enhancements in its powers, including, in certain situations, the ability to initiate a winding-up order at a stage earlier than can occur under existing legislation. The superintendent would also have the power to veto the appointment of the directors of a troubled financial institution.
In addition to the proposed changes to the mandate and the enhancement of powers, OSFI has recently reorganized itself into three broad sectors in order to respond to the changes occurring in the financial services industry. Those three new sectors are operations, policy, and corporate services.
This reorganization has been in effect since the beginning of July. Although it is too early to evaluate its impact, it is my expectation that OSFI will be stronger and better equipped to meet the challenges of the future.
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We want to achieve the most efficient use of our resources while at the same time maintaining our industry expertise, building specialist skills, better coordinating and reducing duplication in such areas as standard setting, policy development, and legislative support; developing common positions on important issues affecting the financial institution sector; and more effectively supervising financial conglomerates.
Mr. Chairman, I concur with the main thrust of the Auditor General's report. I believe it was quite complimentary to OSFI's achievements during an extraordinarily difficult period. My colleagues and I appreciate the efforts made by the Auditor General and his staff. Our comments concerning each section were integrated in the final document, and I've given the committee a copy of my complete response to the Auditor General, dated April 20, a copy of a joint letter signed by me and Mr. Grant Reuber, chairman of CDIC, to Mr. Desautels and dated July 25, which reported on some of the initiatives we were carrying out jointly following the report.
Many useful recommendations have been put forward by the Auditor General, and the great majority of these are being addressed. For example, on the question of the accountabilities of OSFI and CDIC, the new mandate clarifies the framework in which OSFI can be held more accountable for its actions.
Bill C-100 proposes a revision to CDIC's mandate. The Guide to Intervention for Financial Institutions, which was published as an annex to the policy paper, makes clear that the system is enhanced by the judgment of two independent agencies working in close collaboration but with different mandates and necessarily different perspectives and priorities.
As for the role of the Department of Finance in the federal regulatory system, the department has been the lead player on broad policy for financial institutions, and that responsibility will continue. OSFI will play a role in the drafting of technical revisions of legislation, as distinct from those revisions with a major policy content, and will continue to carry out research and analysis relating to financial institutions. OSFI and the Department of Finance have concluded a memorandum of understanding that sets out in detail the responsibilities of the two entities in these areas.
The Auditor General has expressed some concern about overlapping functions between OSFI and CDIC. We agree that there are some areas of overlap that flow from the respective responsibilities of the two agencies. We also believe much of this overlap is constructive, particularly as OSFI and CDIC work together to deal with troubled deposit-taking institutions. The two agencies bring different perspectives and backgrounds to these situations, and better decisions can often result when the two agencies work in close cooperation.
As I pointed out earlier, The Guide to Intervention clearly sets out the responsibilities of the two agencies and indicates what actions OSFI and CDIC are expected to take in the various stages of a financial institution's decline. OSFI has concluded a strategic alliance agreement with CDIC and created a liaison committee, which meets monthly, to encourage cooperation between the two agencies and to avoid unnecessary duplication.
More recently, a joint OSFI-CDIC task force has been created to search for efficiencies in the ongoing development of two similar software products, OSFI's FIRS product and CDIC's MIDAS product.
I'd like to comment on the matter of our monitoring and our examination functions. OSFI's supervisory process was a major concern of my predecessor and continues to be a very important priority for me. The OSFI examination framework outlines the principles and practices of the risk-based examination process, which consists of four phases: planning, on-site work, reporting, and monitoring.
This examination framework is updated and refined on a constant basis to keep up with changes in the financial services industry. For example, in 1994 we implemented the automated reporting system known by the acronym FIRS, which provides OSFI with timely information on the banks we supervise. This has greatly enhanced our ability to service the deposit-taking industry.
To enhance the transparency of our supervisory process, OSFI worked closely with CDIC to produce The Guide to Intervention for Financial Institutions to which I referred a few minutes ago. This sets out five stages into which deposit-taking institutions might be classified according to financial strength or weakness. A separate guide for insurance companies has also been released by OSFI. These guides will help institutions to understand and expect a range of supervisory activities should their financial condition deteriorate.
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The Guide to Intervention outlines some of the criteria used to identify the risk profile of an institution and the timing of the communication of OSFI's concerns to the institution's board of directors and management. It sets out the different steps to be taken when certain thresholds are violated. It's important to understand that we use these thresholds as guideposts rather than as mandatory triggers.
In many circumstances financial institutions under basically sound management but facing difficulties have been able to turn themselves around. One of OSFI's most important roles is to permit and enhance the possibility of a turnaround in order to minimize losses and maintain confidence in the system.
Because of this, we need to exercise a lot of judgment in determining when and how to intervene. On certain occasions, depending on the receptiveness of management and the board, we rely on moral suasion rather than on using our formal regulatory tools. Moral suasion can often be very successful.
But OSFI can only work effectively with institutions in this way if it can work in complete confidence without detailed public scrutiny of the actions it's taking vis-à-vis specific institutions. The alternative, in my view, would be fewer turnarounds and more failures.
OSFI recognizes the need to continually assess the risks facing deposit-taking institutions. Steps have been taken to enhance the ongoing monitoring of deposit-taking institutions through the establishment of an analysis division.
OSFI continues to review its examination methodology to ensure that a proper balance exists between monitoring and on-site examination, taking into consideration the risk profile of each institution and the scope of its activities.
We support the need to have a strong methodology development function in order to ensure that consistent and up-to-date examination and monitoring procedures exist and can be used by examination staff. The development of appropriate guides for examiners is considered to be a priority for OSFI and progress has been made in that area.
OSFI has completed a review and comparison of its existing CAMEL rating system with the risk factors and stages of intervention that are identified in the new Guide to Intervention for Financial Institutions. In fact, the stages of intervention link logically to the existing CAMEL ratings.
OSFI's interventions must vary according to the risk profile of the institution. The actions identified by the Auditor General, which include business activity restrictions, capital infusion requirements and dividend restrictions, are some of the tools that are used and have been used by OSFI, but no institution's operations are identical and the tools OSFI chooses to use must vary according to the situation.
OSFI has established early-warning guideposts. Expanded monitoring and reporting requirements are put in place to monitor the implementation of remedial action. Every effort is made to ensure the process is as uniform and timely as it can be, taking into account the differences between institutions and the situations in which they find themselves. Meetings are held with CDIC to review the operations of higher risk institutions and to agree on the remedial actions that each institution or each agency should be promoting.
Federal legislation prescribes duties for boards of directors, and OSFI has taken a very active role in outlining its views on corporate governance. OSFI has continuously stressed the importance of corporate governance.
We meet with the financial institution's audit committees and often with the full board after each examination of a financial institution. A copy of the management report is sent to the chairman of the audit committee and, where appropriate, specific weaknesses are discussed privately with the directors. We will continue to maintain constructive dialogue with directors and management on this key issue of governance.
Mr. Chairman, the Auditor General has recommended a comprehensive evaluation of the regulatory system's effectiveness. This recommendation is understandable and is consistent with good public policy.
As superintendent I am prepared to consider the areas under OSFI's purview that could be evaluated, taking into account the cost-effectiveness of such evaluations.
.1600
As committee members know, regulatory program evaluations can be complex. In the context of current budget constraints, we want to focus on those things that are useful and practical.
In closing, we recognize the need continually to assess the risks facing financial institutions to ensure that our supervisory process will continue to focus on key risks. We'll continue to maintain regular contact with the institutions that we supervise as part of our ongoing monitoring. In this year we will also be improving our documentation of monitoring procedures and the results of the monitoring process.
As the Auditor General's report makes clear, OSFI is far from perfect, but it has come a long way since its formation in 1987. I believe that with the implementation of the enhanced powers proposed in Bill C-100, OSFI will provide better and more knowledgeable services to the industries that it supervises and reasonably cost-efficient protection for policy-holders, depositors, and creditors.
Mr. Chairman, my colleague and I shall be happy to answer any questions that you and your committee may have.
The Vice-Chairman (Mr. Telegdi): Thank you very much, both of you.
Mr. John Williams.
Mr. Williams (St. Albert): Welcome, Mr. Palmer and Mr. Desautels and your staff. I appreciate your coming here today.
Mr. Palmer, how big is your budget and how many staff do you have working for OSFI?
Mr. Palmer: Our budget is about $42 million and we employ about 417 person-years.
Mr. Williams: I noticed in the Auditor General's report the words:
- OSFI's supervisory processes have improved, but significant work needs to be done. So he has
some concerns.
Mr. Palmer: That's a good question. I would probably answer it by trying to put it in this context: we probably will never be exactly where we should be, because the environment in which we're operating is constantly changing.
One of our biggest challenges is to be monitoring the changes that are occurring within the financial system and constantly to update our procedures, to change our procedures in order to keep up. This is going to be a constant challenge. We will be playing catch-up ball for as long as I can foresee.
Mr. Williams: I'm sure the Auditor General took that into consideration when he made the observation that it's always an evolutionary process. But he was critical of the fact that you weren't up to a level that was appropriate with today's knowledge and expertise.
Mr. Palmer: Well, you read the Auditor General's report a little bit differently from the way I do, but the Auditor General is here and can speak for himself if he wishes to clarify that.
To be a bit more specific, we are focusing our efforts, as I have mentioned in my opening remarks, on the monitoring function. What I mean by monitoring is the regular review of financial data from financial institutions, rather than relying entirely on annual visits to financial institutions in order to carry out a review of data on site.
We are also not abandoning our on-site examinations, which continue to be very important. However, the focus of those is changing. A few years ago, particularly during the real estate difficulties, our focus would have been on asset quality, particularly real estate secured loans. Our on-site examinations are now shifting in their focus to the issue of controls: controls inherent in their management information systems, their computer systems; controls inherent in their treasury activities, their trading activities, which represent a growing area of risk. So we are attempting to enhance our examination function as we build a more effective monitoring procedure.
.1605
Mr. Williams: I was talking to some senior bankers in one of the five major chartered banks. They indicated to me that there seemed to be a great deal of control and concern by OSFI about what to them are relatively innocuous and small things, because they're a large organization. It seemed OSFI was just applying the same rules and the same benchmarks with the same reporting functions to an institution with $100 billion in assets as to one with just a few million dollars in assets.
That may be so, but I take a look at The Globe and Mail today, October 3, 1995, and I see that CDIC's loss amounts on North American Trust are now up to $600 million. OSFI and CDIC are linked very closely together, because you do a lot of the supervision of the institutions that end up failing and CDIC has now bailed NA out to the tune of $600 million.
Of course, with Confederation Life last year, we're seeing a growing number of failed institutions. We see that CDIC are going further and further in the hole as they're bailing people out with taxpayers' money. Can we expect this drain on the public purse is going to stop? Sorry; CDIC is largely financed by financial institutions. But can we see that this erosion of public confidence by failed institutions is going to reduce somewhat in the near future, or can we look forward to more and more failed institutions on the front pages of our papers?
Mr. Palmer: Mr. Williams, there are a number of questions within that larger question. First, just to deal with something very specific, OSFI was not the primary regulator on North American Trust. It was the Alberta regulatory authority. Just for the record, that should be made clear. But I think the broader thrust of your question is still entirely valid.
I think it would be unrealistic to believe we are going to see an end to the failures of financial institutions. Indeed, Bill C-100, and the policy paper that preceded it, make it clear that the failures of financial institutions are likely to continue, can't be controlled, can't be prevented by the regulator, and are the primary responsibility of the management and boards of directors. The challenge we've been given in Bill C-100 is to minimize the losses flowing out of those failures.
Mr. Williams: But with the changes in your structure and your management and your assessment procedures, can we look forward to a day when you're going to be pulling the pin on these institutions so we don't have a loss of $600 million in an institution that certainly isn't a household name across this country? That's a lot of money that has been lost. Can we look forward to a reduction through greater or more improved or better supervision, however we want to expect it or to call it, based on the changes going through in your office?
Mr. Palmer: I wouldn't concede the premise in that question, that supervision has been in any way inadequate till now, Mr. Williams, because the system has gone through an extraordinary financial shock. The decline in real estate, the change in inflationary assumptions, the depth of the recession, were shocks the system had not experienced since the 1930s. I think in evaluating the way in which the system has performed that has to be taken into account.
However, I can tell you we will be taking very seriously the mandate set out in Bill C-100, if Bill C-100 passes. We will be attempting to intervene earlier. We will be focusing as much as we can on the minimization of losses to depositors, policy-holders, and creditors.
Mr. Williams: But surely when the economic environment is at its worst is when you're needed the most. During good economic times there'll be little or no need for a great deal of supervision, because everybody's making money. It's your role, I think, to anticipate these deep recessions that may come upon us, to guard the Canadian taxpayer or the depositor accordingly.
I'm looking at the Auditor General's report at 5.91, where he's talking about the lack of specialized staff in your department. Again, I go back to the chartered banks, and they have people in their derivative markets who have PhDs in mathematics and so on, in order to manage these major risk factors that are now taking place.
.1610
We saw the situation, fortunately not in Canada, of Barings Bank, which went down with $1 billion. According to the Auditor General, we're now talking about a notional principal of $2.7 trillion a year being handled by derivatives. Don't you think you should be beefing up your supervision with the best qualified staff available to keep tabs on these types of things?
Mr. Palmer: The short answer, Mr. Williams, is yes, but we need to be realistic. The top people in this game command seven-figure incomes, and we simply can't hire that kind of expertise. So there are limits to what we are ever going to be able to do in that field.
We are focusing on those things that we can do and those areas where we think we can be effective. We're focusing on control systems, and we will be beefing up our expertise in that area to the extent that market conditions will permit.
Mr. Williams: My final question deals with confidentiality. I note that you want to deal within total confidentiality and secrecy in your evaluations and your reporting back to management. If I recall the discussions we had at the hearings on Bill C-100, we all agreed that it's going to be impossible for institutions to keep negative reporting under wraps.
Don't you think you also have a responsibility to the taxpayer and to the Canadian public, so that if you see an institution that's failing or is at risk, the depositors and the Canadian public should be aware in some way, shape or form, much like a bond rating, that one institution isn't the same as another?
Mr. Palmer: Mr. Williams, I understand the thinking behind that question, and I respect the view. I recognize that it's shared by others. But I believe that if we were to do that, there would be a more negative impact on the system than what we are currently experiencing, and let me explain that.
We are privy to more confidential information than bond rating agencies or anyone else. The public is likely to react differently to any expression of OSFI's concern than it would to expressions of concern by a bond rating agency or someone else.
In short, I believe that if we were to telegraph our concerns about institutions, even if our concerns were relatively minor, it would have a negative impact in the marketplace, which is becoming increasingly volatile. You would see a flight of deposits and policies from the institution, and it would have the tendency to pull the institution down before it had had a chance to rectify what might otherwise be problems it is quite capable of rectifying.
Interestingly, under those circumstances the depositors and policy-holders who would flee first would be the most sophisticated, leaving the less sophisticated policy-holders and depositors holding the bag. So I think if we followed your suggestion, it would exacerbate the possibility of failure and it would increase the losses that occur as a result of such failure.
I sympathize with the thinking, the reasoning and the sense of equity behind the recommendation, but I believe that in a practical sense it is insupportable.
Mr. Williams: Thank you.
The Vice-Chairman (Mr. Telegdi): Thank you very much. That was a very interesting exchange.
Mr. Desautels, you've been listening to the response. Do you have anything to say on that?
Mr. Desautels: Not at this point, Mr. Chairman, thank you.
The Vice-Chairman (Mr. Telegdi): Okay.
Let me ask a question particularly as it relates to financial instruments that are becoming much more volatile. It's been mentioned that derivatives have caused quite a financial fiasco. To what extent do you isolate those risky propositions in terms of assessing risk?
Mr. Palmer: We're spending a good deal of time attempting to identify the areas of greatest risk within a financial institution.
I'm going to ask my colleague to talk a bit more specifically about the sorts of things we do, but I just want to observe in passing that although we've seen at least one spectacular loss from derivative trading activities, i.e., the Barings Bank crisis, more recently we saw a very substantial loss by Daiwa Bank, which arose from trading in homely U.S. treasury bills.
.1615
So I think we need to keep our concerns about derivatives in perspective.
Jack, perhaps you could talk a bit about our risk-based examination and how we try to focus on those issues.
Mr. Jack Heyes (Director General, Office of the Superintendent of Financial Institutions): Mr. Chairman, I would like to first look at some of the comments that were highlighted in the Auditor General's report about the growth in some of the derivative products. I think it is important to understand what makes up that growth. Then, if it's all right with you, I'll outline some of the activities that we are undertaking to look at derivative products from that perspective.
When you look at the statistical data provided by the Auditor General, it doesn't take into consideration the collateralized security that is held to look at or secure some of the derivative products. One also has to consider the fact that when dealing with derivative products, the bulk of the products are done with banks as well as governments, and approximately 90% of the transactions of derivative products are transacted with institutions or counterparties having investment grades of outside ratings.
When one looks at the statistics that were provided by the Canadian banks and you look at the type of instruments they were doing, and are doing primarily, in the past they have been very well seasoned products, known to the market and traded for many, many years.
The risk management practices and the procedures are well managed in dealing with those products. That tells you a little bit about the past. We are now seeing the market change slightly, and there are some institutions indicating that they want to become market-makers rather than market-takers.
Mr. Palmer has indicated that we have not had the expertise on staff to look at the high risk and the volatility of some of these products. But we will go out and obtain that expertise where required. We will hire outside consultants to assist us with the examination, looking at the quantitative as well as the qualitative measurement techniques. We do this on a fairly regular basis, depending upon the growth, the type of products and the volumes that are being transacted by these institutions.
These types of specialized product reviews will continue and are being considered as we go forward in our examination methodology for future years.
[Translation]
Mr. Laurin (Joliette): I only have one question, Mr. Chairman.
In certain situations, your organization as well as the Canada Deposit Insurance Corporation are authorized to intervene. When that happens, which of the two organizations has priority? Do you consult with each other first to decide which one of you will have priority? Does this process help you determine who is accountable when you intervene, even in cases of bankruptcy?
[English]
Mr. Palmer: That's a very good question and is one that we attempted to answer for the benefit of the public and the financial institutions themselves through The Guide to Intervention for Financial Institutions, which was published as an annex to the Department of Finance white paper last February.
Broadly speaking, what it shows is that at the early stages of a financial institution's deterioration, when there is still hope for saving the financial institution, the primary intervener is OSFI. OSFI intervenes in a number of ways. Some of its steps are not formally mandated by legislation. Some of the steps that OSFI takes are formally built into the legislation; its capacity to issue compliance orders, for example, to add more capital.
As a financial institution deteriorates and reaches the point where insolvency is in question, the CDIC has certain specific powers under its act that it can exercise. The most significant of these is the withdrawal of the policy of deposit insurance.
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In one recent situation, where a financial institution was seriously undercapitalized but had not yet reached the stage of insolvency that would have given OSFI the power to act, CDIC became the primary actor by signalling its intention to remove the policy of deposit insurance. So each agency has actions it can take according to its own powers. But as a general proposition the more serious the problems of the financial institution the more active CDIC becomes. I hope that is of some help.
You asked about cooperation and consultation. I can tell you that as we are dealing with a financial institution that we're worried about, we are discussing it with CDIC on a constant and ongoing basis, and most decisions are made jointly. But it is possible from that Guide to Intervention to see which agency has primary accountability at a particular stage.
[Translation]
M. Laurin: Do the two agencies determine in advance which one will take the lead? In your answer you seem to say that it is the Office of the Superintendant that is always the first to act and that, when things get worse, it can ask for a CDIC's help. Is it always the way things go?
[English]
Mr. Palmer: If I understand your question well, sir, you're asking if OSFI always takes the lead in these problem situations. I think as a general rule that would be the case.
[Translation]
Mr. Laurin: But there seems to be overlap between both institutions. It is not clear, in the papers you have given us, if each institution has a very clear and definite role and that it knows when it should intervene. It would seem that in some cases, both institutions would have the authority to act. What do you do to avoid such overlap?
[English]
Mr. Palmer: First of all, there is overlap, as I have acknowledged. I believe the overlap is, first, not extensive in terms of dollar costs. Secondly, it is beneficial to the system, and as long as the two agencies work together in a cooperative way it will continue to be beneficial to the system. The overlap occurs in a variety of stages. Where a financial institution is in reasonable health, OSFI is carrying out its normal supervisory activities. It is carrying out examinations, monitoring the institution. Where there are some difficulties, some issues that should be dealt with, OSFI is intervening, providing advice and suggestions to management and the board of directors. CDIC is relatively but not completely passive at that particular stage. It is gathering information on the financial system itself. We provide CDIC with a regular report under the CDIC Act on our examinations of institutions. So it is doing some data collection but the activity is not extensive.
As the institution deteriorates in health, CDIC becomes more active and is preparing itself for the day when it may have to go in and take charge very quickly to pay out depositors, up to the limits in the CDIC Act. For example, as it becomes increasingly clear that there is a risk that an institution will have to be shut down, they go in and carry out what's called a preparatory examination. They examine the records of the institution and they prepare themselves so that they can move in at a moment's notice and pay the depositors immediately. They are carrying out functions that we are not carrying out because their functions are clearly set out in the law and flow from their primary obligation, which is to provide a policy of insurance to the depositors.
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[Translation]
Mr. Laurin: Do you automatically withdraw your people when CIDC intervenes or are you still involved with the financial institution?
[English]
Mr. Palmer: No, because we are working in parallel, carrying out separate functions. For example - we're now talking about an institution that's insolvent and that we believe should be liquidated - in most cases OSFI steps in, takes control of the financial institution, and arranges for a liquidator to be appointed, while at the same time CDIC is moving in to ensure depositors are paid out. So the two agencies are working in parallel, carrying out separate, discrete functions.
[Translation]
Mr. Laurin: I am somewhat surprised to hear you say that the overlap, in these circumstances, is beneficial. Very seldom will people admit that there is overlap and that it is a good thing. Usually, one tries to avoid overlap. This would therefore be an exception.
I would like you to tell us why this is so beneficial because I'm not quite convinced that it is.
[English]
Mr. Palmer: I can see that, but I would like to argue that in this case the overlap is not so much overlap as the fact that each of the two agencies has separate functions to carry out in dealing with an institution that is in serious financial difficulty.
It would be possible to merge those functions under one agency. You could merge OSFI and CDIC, although I would not recommend it. But the two functions would have to be carried out. There would still be two separate functions. One is the function of taking control of the troubled institution. The other is the function of going in and paying out the depositors under the policy of deposit insurance that CDIC operates. So there would be no saving of manpower, because the two functions would have to be carried out.
Where there is a bit of genuine duplication and overlap is perhaps where a financial institution is in reasonably good health and where CDIC is carrying a kind of passive monitoring activity of its own.
But I think the system benefits. I've certainly found the mind-set at CDIC in dealing with troubled financial institutions is rather different from the mind-set at OSFI. At OSFI we tend to function a bit as consultants. We're helpers. When the financial institution is getting into difficulty, our first instinct is, how can we save it? How can it be turned around? CDIC, whose experience has been in working with institutions that are being liquidated, tends to think immediately in terms of liquidation and limiting their own losses. So they come with a different mind-set, a different experience, and we often debate.
The results of those debates are often quite useful. I think we end up with a better decision than if one agency or the other had the final say under those circumstances.
As I say, I don't think the manpower that is invested in those areas and that might constitute genuine overlap is significant. We're not talking about significant dollars.
[Translation]
Mr. Laurin: Mr. Chair, I would like to ask the Auditor General if the answer...
[English]
The Vice-Chairman (Mr. Telegdi): Could we come back to you again?
[Translation]
Mr. Laurin: This will be my last question. I wanted to ask the Auditor General if he agrees with Mr. Palmer's answer.
[English]
Mr. Ron Thompson (Assistant Auditor General, Office of the Auditor General of Canada): Certainly when we were conducting the audit we understood pretty clearly what Mr. Palmer was saying about the merit in having these two entities involved in a complementary way in looking at institutions. There were, though, a couple of specific examples we used in the chapter where we felt overlap could perhaps be managed a bit better, or eliminated. I'll give you one example.
OSFI issues guidelines to financial institutions. CDIC issues standards of sound business practice. On occasion, the guidelines OSFI issues cover some of the same areas that the standards CDIC issues cover. Some of the financial institutions are then receiving instructions from two separate bodies, and I guess they are wondering a bit about whom they should obey and in what order.
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It seemed to us that it would make sense somehow to rationalize who should be setting out guidelines and who should be setting out standards and on what subjects. That is something we think is possible to do in a number of ways, but it is an issue that we believe needs to be looked at. I understand that Mr. Palmer and his colleagues are looking at it.
That's one example of overlap, where we think something could be done by having one body or the other issue the standards, or at least agree on a set of criteria as to who should issue what and in what circumstances.
The Vice-Chairman (Mr. Telegdi): Of course, Mr. Palmer, you'll be reporting that to our committee when it happens, when you will have worked that out. We're looking forward to that.
Mr. Crawford (Kent): I'm glad I'm not the only one who is confused. Mr. Laurin is too.
If I heard you correctly, Mr. Palmer, you said that OSFI would come in if the company was still solvent but it could be heading toward trouble. Once it got into too much trouble, then in would come the CDIC.
I'm relating to my experience in industry. I run a department, and if you screw up in your department, then don't come to me. Here, if I am the manager of CDIC and you come to me and say, ``We've lost it'', I'm not going to take the heat. You blew it.
I cannot see how two different bodies can have two mandates or work together or overlap. I would prefer to see one body so if things went wrong I could go to you and say, ``You''. That's why I don't know whom to blame when it goes wrong.
Mr. Palmer: The two activities flow from two separate legislative mandates. CDIC is an insurer; it provides a policy of deposit insurance to the depositors. CDIC does not supervise financial institutions.
OSFI's role is to supervise financial institutions, so OSFI provides the supervision, the on-site examinations, and the monitoring of financial institutions. OSFI is the primary actor as a financial institution is beginning to get into trouble.
So CDIC's statutory role is at the end of the line when the financial institution has failed.
So you could have a system... Indeed, this was the system that operated prior to 1987, when the CDIC had no powers to act until the moment when the financial institution failed. It then came in and wrote cheques to all of the depositors covered by deposit insurance. In a case such as that, you could argue that there was very little overlap because it occurred just at the end and clearly each agency had absolutely separate functions.
In 1987 it was concluded that, in order to minimize losses, CDIC should have some powers to protect itself and to minimize the losses it might experience. So it was given expanded powers in the revision of financial institutions legislation that occurred in 1987. This is why you find CDIC carrying out some activities beforehand. It was given the power by law to set standards of sound business and financial practices - for example, the issue to which Mr. Thompson was referring earlier - as a way to encourage financial institutions to behave in a way that would minimize losses. So these flow from existing legislation.
While OSFI is supervising financial institutions, deposit-taking institutions, CDIC is not. It is not in the institutions carrying out examinations. It is relying primarily on OSFI as its eyes and ears. It collects some information on its own, but OSFI is its primary source of information.
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OSFI provides CDIC with an annual report on its examination, which it is required to do under the Canada Deposit Insurance Corporation Act, including the institution's compliance with standards of sound business and financial practices.
So I think each agency does have very separate functions. CDIC is really watching while OSFI is supervising. It's only at the end of the line that CDIC becomes really active and gets into a position to pay out the depositors.
I think the issue has been somewhat overblown, and I may well have contributed to it in my verbose answers.
Mr. Crawford: Maybe I should have been here before 1987. I like to have one person to whom I can say that he is the one who caused whatever.
Then there's the guaranteed payment by CDIC. It doesn't change. It's still $60,000?
Mr. Palmer: The guaranteed limit, Mr. Crawford, is still $60,000.
Mr. Crawford: But say you have $200,000 in a bank account. The company goes under. You're guaranteed $60,000, but you have $14,000 in interest. The $14,000 is deducted off the $60,000, which they never pay you. Then you turn around and pay income tax on $14,000 that you never saw.
Has this been rectified? It happened just in the last five years. They were doing this when they went under. When the settlement came, you were credited with interest that you never saw on the money you had in there. Then income tax came after you for the $14,000, or whatever the interest was, as an income that you never had.
Mr. Palmer: Mr. Crawford, I'm no longer an income tax expert, but I used to dabble in that field in a former life. I would guess that this results from incomplete information in the hands of the income tax authorities. If you never saw the interest and had lost your right to collect it, I believe that you have the basis for resisting any income tax assessment, but there can be some difficulties in getting to that result.
Mr. Crawford: Real difficulties.
My main view is that I feel it should be the responsibility of one department to answer to OSFI.
Ms Whelan (Essex - Windsor): I have a question about the letter of April 20 to the Auditor General. In your third point, there's still a disagreement among the facts in 1995. I would just like that clarified a bit. I assume we have standard accounting and office procedures. What kind of disagreement can we still have among the facts, and what does that do to the final report?
Mr. Palmer: First, Ms Whelan, I would not see that as a particularly important issue in our overall response to the report. As you have heard and seen, we were in broad agreement with many of the recommendations and with the overall direction of the report.
There were a few situations in which we believed we were supervising in a particular way. The Auditor General's response was for us to show him the documentation. If the documentation wasn't there, it was going to be difficult to accept that it was being done.
In many cases, a lot of the things we do are done informally. Let me give you one example: governance. The Auditor General would like us to put out some kind of guide, perhaps a best-practices guide, on governance. That is a sincere, well-motivated recommendation that has some merit.
Our view is that we have been playing a very active role already in talking to management and boards to counsel them as to our views on governance. Have we documented all the speeches the previous superintendent gave, and that I am still giving? No, we have not. We haven't got them all collected into a governance file. So we have some difficulty proving to the Auditor General the amount of activity we're carrying out in that particular area.
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I can assure this committee, as I have assured the Auditor General, that we have been extremely active in the area of governance. In almost every meeting with audit committees and boards of directors, it has been on the agenda and we have spoken to it. We have reminded the boards and the audit committees of their important responsibilities in the overall system.
So that's a disagreement on facts. Is it a terribly important disagreement? Probably not. We both understand that governance is important. We both understand and agree that OSFI should be playing an active role. There is some disagreement as to just how formal we should be.
As to whether or not we should be writing a book on the subject, we don't think so. It is already becoming a crowded field with the Toronto Stock Exchange having published guidelines on governance with the Cadbury report in the U.K. It has been read very widely across Canada, with a number of accounting firms and consulting firms also publishing booklets on governance. We think we would simply overcrowd an already crowded field. But it's a valid issue and the Auditor General has a valid point of view, and one that we respect.
Ms Whelan: My other question has to do with the fact that the financial services industry will be reviewed in 1997. Where do you see your role in that review? Has the Auditor General made note that there was no comprehensive evaluation carried out to ascertain whether the government is achieving its objectives? How do you see yourself in that role in 1997? Where do you see yourself?
Mr. Palmer: Well, there are really two components to that question.
With respect to the 1997 review, we do have a role to play in it. Under the memorandum of understanding with the Department of Finance, we have some responsibility for generating technical amendments to the amendments that went through in 1992. What we're doing is developing a list of fixes to the legislation where we feel that the 1992 legislation did not work, did not carry out its full objectives.
So our role is a bit of a micro-role. The Department of Finance will be the lead actor with respect to the 1997 legislation. We'll be pursuing those changes of a policy nature. We have actually sat down with the Department of Finance and compared laundry lists - our laundry list of technical amendments that we think ought to be considered and their list of policy-related issues, of which they will be the primary driver.
The second part to your question had to do with the definition of the roles of the various actors within the financial system. Our feeling is that Bill C-100 has added a good deal of clarity, if not perfect clarity, to that situation, principally by defining the mandate of OSFI for the first time and by making it clear what we're here to do, and also by in fact making some adjustments to the role of CDIC, which, under the CDIC Act now, is very broadly described. For example, it includes some things like promoting competitiveness to the system. That is not something CDIC can really do in a practical sense, so it has been removed. So they're making CDIC's mandate more precise and they're giving us a mandate for the first time. I therefore think the situation has been significantly clarified.
Ms Whelan: Thank you.
Mr. Williams: Mr. Palmer, looking again at the Auditor General's report, in paragraph 5.99 he says:
- OSFI should enhance its processes for training and development of its staff.
- Methodology development receives insufficient priority.
- OSFI should place greater emphasis on methodology development to enhance examiners'
capabilities in risk assessment and risk management.
Looking at your own report today, you said:
- The development of appropriate guidelines for examiners is considered to be a priority for
OSFI and progress has been made.
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I'm concerned about the quality of the examination process as it pertains to institutions with problems. I'm not worried about the ongoing mass supervision of reports on institutions that are fulfilling their mandate every day. These are serious criticisms of how we identify, challenge, correct, and prevent loss on institutions.
Once I get your report, I'll get the Auditor General to comment on it too.
Mr. Palmer: Mr. Williams, I strongly resist your characterization of these comments as serious criticisms of the office. I think the Auditor General's report was carefully worded, and I'm in broad support of the wording.
This office was focused primarily on dealing with the most significant financial crisis this country had suffered since the recession. The people in this office - and I take no credit for it, because it was before I came - were going flat out in coping with the crisis, which was of a depth that, frankly, the office was not created to handle.
So I don't see this as criticism. But that having been said, we're in general agreement with each of those recommendations. We do agree with the Auditor General that we have to do more in training. We are in agreement with the Auditor General that we have to enhance our methodologies. We're in agreement with the Auditor General that we have to formalize our post-mortem process, which has tended to be rather ad hoc.
So as recommendations for the future, we support them completely and we are working on all those fronts to improve our capacity. But I frankly don't think there was any realistic way we could have made more progress than we did in these particular areas while my colleagues and former colleagues were attempting to create an office from a standing start in 1987 and at the same time react to quite an extraordinary series of financial crises.
Mr. Williams: Thank you. Mr. Desautels.
Mr. Desautels: Essentially we had very little difficulty agreeing with OSFI on these points.Ms Whelan was talking earlier about areas where we may have disagreed, but in these areas it's my understanding that our people and the people at OSFI agreed pretty quickly on what had to be done; on certain actions that had to be taken. So I think we're on the same wavelength when it comes to that.
Our interest now, and it applies to other recommendations we've made in this report, is more just to see these things happening. I believe the committee's interest may be in the same direction. I would hope that as a result of these hearings, for instance, we could eventually, within the next couple of months, obtain from OSFI a more detailed work plan on how and when certain of these recommendations will eventually take place.
As a matter of fact, I understand some of these actions have already been taken by OSFI on certain of these recommendations. Nevertheless, it would be useful to get some kind of analysis of our recommendations and of what stage OSFI are at in implementing them and when they see eventually getting most of it done.
Mr. Williams: One of the concerns I have - it has been mentioned a couple of times - is that OSFI ran into a serious economic crisis it had to deal with - ``crisis'' is the wrong word; a serious economic downturn it had to deal with - which had a serious effect on financial institutions. But I want to make the point that it's only during these particular times that OSFI's role really comes into play. Therefore, I think you must take into consideration now...and plan for that eventuality happening again, so you're not caught short, understaffed or underplanned, without anticipating an economic downturn happening again.
I note you had a reluctance to perform the evaluation that had been called for by the Auditor General. I personally feel if you don't measure something, you can't manage it. I think OSFI should give serious consideration to looking at the overall scope of its role through the economic cycles, so if you're ever back at this committee again you won't be able to use an excuse saying, we were caught flat-footed because we hadn't anticipated the depth of the economic cycle. As I have said, that is when you come to the fore, and it's your responsibility to anticipate and take corrective action at the earliest opportunity so that losses will be minimized.
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Do you take that point seriously, and would you consider doing the evaluation as recommended by the Auditor General?
Mr. Palmer: I'm in agreement with the general point that OSFI has to plan its activities in the knowledge that there are economic cycles, and there are downturns as well as upturns. That's entirely valid, but I put this to you. Downturns can be of varying degrees and varying seriousness. If you look at economic cycles over the last couple of hundred years, you find that recessions sometimes occur almost every decade, and periodically you have a real dilly, a very deep depression. On the record, we've had a couple of them this century, and perhaps arguably something in the first decade of the century.
The question I put to you is this. Do we gear ourselves up and maintain the sort of resource we're going to need for the most serious economic cataclysms, or do we maintain the level of resource for what we might regard as more typical, or more regularly occurring downturns?
There's a big cost to the system in maintaining extra resource that we're only going to need perhaps twice a century. So we have to anticipate and make some assumptions about the depth and type of economic crisis we're going to get into in making our plans for the future.
Mr. Williams: I would like to comment on that, Mr. Chairman. I don't think you gear up and maintain an organization for the worst cataclysm that could come along, but I think you are charged with the responsibility of having a plan that could be put into effect should that ever happen.
The point I would like you to agree to is that you have a responsibility, through a comprehensive program evaluation as outlined by the Auditor General, to say what plan you would put into effect the day you feel we're into a very serious and deep economic recession. That's the point when your organization is going to come right to the fore and have to play a very major role. It will be much more than what you do today and during the ups and downs of the normal economic cycles. But if you don't do that, you will be found wanting.
Mr. Palmer: I accept the point.
Mr. Williams: Thank you. I do appreciate very much the candour of the remarks.
Moving on - and it may be confusing a bit with Bill C-100 - I know your philosophy is that owning a financial institution is a privilege rather than a right. But I'm concerned, again within the context of a free and open society, when you take upon yourself the right to order the wind-up of an institution that, in essence, still has some positive situations, and the right to veto the appointment of directors to financial institutions.
Dealing with each one individually, your role of pulling the pin on a viable institution that in your opinion presumably has no future but is still viable at the time you do it, under what constitutional rule do you think you have to do that?
Mr. Palmer: Mr. Williams, I'm not a constitutional expert.
Mr. Williams: But you might have to answer it in retrospect.
Mr. Palmer: Fair enough. What we at OSFI would be basing our actions on would be the provisions of Bill C-100, which require us, in terms of both the overall mandate and some specific powers, to act earlier before an institution meets the legal definition of insolvency, for example. So you raise a valid point in equity.
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What we're being asked to do, in effect, is make a judgment call on the ability of that institution to make it. In a sense, we're being told that when the balance of probabilities moves to the point where you think that institution is unlikely to succeed - bearing in mind that institutions, in times of difficulty, will be working like heck to develop turnaround plans and implement them - OSFI has a duty to intervene.
There is no question that has implications for the rights of shareholders and management. In essence, their rights are being made secondary to the rights of depositors, policy-holders and creditors, who, we are being told in our new mandate, it is our primary duty to protect.
I think it's fair to say there will be a certain rough justice emerging out of that. We will be making judgments. These judgments will be based, in many cases, on qualitative factors as well as quantitative factors. They will be based on our judgment of the capacity of management to engineer a turnaround plan.
It is important to point out, however, that the shareholders will not lose all of their rights under those circumstances. They will still have rights in law to sue for damages if they feel or can prove that OSFI acted hastily or without due diligence.
This is the central thrust of Bill C-100, and there is a trade-off in the rights of two economic groups within society in order to achieve what is considered to be a good for the financial system as a whole.
Mr. Williams: I appreciate the balance OSFI is trying to achieve between protecting the depositors' rights, protecting the government, which backstops the depositors, and protecting the rights of the shareholders. The same comments apply to the veto they're taking to themselves on the appointment of directors.
I would just suggest they proceed with a great deal of caution because I don't see any reason why this government and the taxpayers should be put at risk in a situation where there is a significant constitutional question to be answered.
The Vice-Chairman (Mr. Telegdi): I'm sure we're going to have lots of debate around it when the bill is before the House.
Before we wrap up the meeting, I would like to give the last word to the Auditor General. Then we'll be heading off to the House.
Mr. Desautels: First of all, I would like to pick up on the comments made by Mr. Williams. I believe Mr. Williams has underscored the need for a strong and vibrant OSFI, and this is something we think is absolutely needed. I think you all appreciate that the cost of failures in the financial institutions is usually much higher than the costs of running OSFI, so we have to keep things in the right perspective.
At the same time, we know that the business OSFI supervises is becoming even more complex, with derivatives and other instruments, volatile markets, the communications revolution, and the breakdown of the traditional barriers between different types of institutions. The world isn't necessarily getting any easier, and I think it's important to have a strong and vibrant organization like OSFI.
It seems to me, Mr. Chairman, that Mr. Palmer is considering a number of our recommendations. As I said a little earlier, perhaps it would be helpful to all of us if he could provide the committee with a detailed action plan at the appropriate time. I think this would help the committee deal with a fairly technical chapter. It would certainly help us carry out our follow-up work on behalf of the committee.
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I would also be pleased to collaborate with Mr. Palmer and his people if that would help.
The Vice-Chairman (Mr. Telegdi): Thank you very much. We'll be looking forward to those numerous reports coming to us. We might revisit the whole issue again.
There's no question that the financial sector is becoming much more complex. In many ways, government policy is asking financial institutions to make moneys available to a new economy that doesn't have the rules of the old economy. In many cases we're looking for them to be market-makers.
Thank you very much. We'll be back tomorrow. The meeting is adjourned.