Financial Services and Regulation - Op Eds

COVID-19 has put much of Canada’s economy on life support. As we emerge from the crisis and resume more normal activity, a challenge awaits. We do not want viable businesses to disappear. But we also do not want zombie firms to live on indefinitely.

Early in the crisis, governments reasonably prioritized supporting households and businesses through central banks, government lenders and transfer payments. Going big and broad made sense to help us survive the sudden stop.

We now need to navigate a different problem: letting firms go. In an ordinary year an amazing number of businesses in Canada appear and disappear. In 2017, 143,000 businesses came into existence — about one for every eight that already existed. That…

Over the past 25 years, Canadians’ household debt has increased steadily as a share of their disposable income. During this time, and especially since the financial crisis, they have often been told their debt levels were unsustainable and that a day of reckoning was fast approaching. And yet that day has not come. One reason why seems clear: for the most part over the past 25 years, the amount Canadians spend servicing their debt has not changed as a percentage of their disposable income.

In a recent C.D. Howe Commentary, we argue that it is primarily this “debt service ratio” (interest payments plus reimbursement of principal divided by disposable income) that determines households’ ability to make their payments at…

In Canada the financial services sector weathered the 2007-08 global “credit crunch” better than it did in many other developed countries. One argument for why, certainly in contrast to the U.S., was the smaller size of our “non-bank financial intermediation” (NBFI) sector, more commonly referred to as “shadow banking.” But rapid growth in the shadow sector since the crisis suggests this resilience might be under threat. What does that mean for monetary policy, financial stability and regulation? As it turns out, a lot.

Broadly speaking, the shadow sector includes investment funds, private lenders like mortgage finance companies, companies that offer private-label securitization like asset-backed securities, and more. Shadow…

Canada’s investment advisory industry has evolved through consolidation and new products to meet the needs of a more demanding and active investing public over the past two decades. Unfortunately, its regulatory structure has not kept pace. Overlapping regulatory organizations and outdated rules are limiting innovation and efficiency.

Unlike sectors in which industry must petition government agencies for regulatory relief, companies in the investment and mutual-fund industry can propose a better solution for the sector and Canadian investors. And as I argue in a recent C.D. Howe Institute report, the time is ripe for a merger.

First, a little background. The bulk of the financial advice industry operates through dealer…

In the coming months, the Bank of Canada‘s mandate to target inflation is coming up for review. Some have suggested that the mandate should be expanded to include responsibility for financial stability, defined as heading off the imbalances that could trigger a severe financial crisis, such as what the world experienced just more than a decade ago. In a recent C.D. Howe Institute report, we argue, marshalling historical and empirical evidence, that granting the Bank an explicit mandate to target financial stability is not a good idea, and that doing so would create a conflict with its tried and true mandate for price stability.

Calls for central banks to take on responsibility for maintaining financial stability are…