Thank you for the question.
We look forward to the hearings you hold on this issue. And if you would like us to appear, if we can be of any service, obviously we would.
I would say that with respect to ABCP, the non-bank asset-backed commercial paper issue, multiple factors caused the problem. And I would start by underlining the responsibility of all market participants for their actions in creating the problem and being party to the problem.
I would highlight three issues specifically.
First, on disclosure, and this is an issue for the relevant securities commissions, it appears that under the current disclosure requirements, these so-called exempt securities were sold without a full disclosure of the risks that were included, including importantly--which drove the dynamic of this situation and made the Montreal Accord so difficult--the fact that derivative counterparties to the structures, and it's slightly complicated, were senior to the noteholders. And this was a very important factor that drove the negotiating dynamics and did not appear--I won't be conclusive about it--to be adequately disclosed. That's the first issue around disclosure.
The second issue does relate to the liquidity arrangements that were associated with this paper. You made a reference to the fact that there was a so-called general market disruption clause related to most liquidity lines that were there. This issue was flagged by third parties--including twice by the Bank of Canada--and it was ignored, by and large, by noteholders who held the paper and, by and large, by those who structured the paper. And that is an issue I would encourage you to look into.
In terms of OSFI and liquidity, I really think it's best addressed by OSFI. My understanding, though, of the situation--and I know you will speak directly to OSFI about this--is that the bank capital treatment related to these liquidity facilities in Canada was not different from the globally accepted standard. What was different is that a market was allowed to develop that took advantage of one treatment of that capital standard. And that market developed based on ratings, based on structuring advice, based on sales, and based on the willingness--and this goes back to responsibility--of investors to take that paper in the face of warnings to the contrary.
The third issue, which is a broader issue that I think has affected a variety of structured products, is the alignment of incentives between the various principals who structure and sell the products and the end investor. I think whether it's the non-bank asset-backed commercial paper in Canada situation or the subprime mortgage situation in the U.S., one thing that is abundantly clear from these situations is that it is risky to purchase a structured product where there is not clear alignment of the originator or the packager of the original assets and the end investor. So if there's no tail responsibility, whether legal or economic, to the structurer, as an investor one should take a pause and decide whether or not to invest.