Finance Committee on March 3rd, 2009

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It's that the decline in real estate prices is just around the corner. I can't believe the government has not looked at that.

It's not doomsday, but I'm asking if you have a ranking of what you feel is going to be the next potential sector to be hit.

[Jeremy Rudin]

I wish I understood the question.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It seems to me that in answering the question you don't seem to be worried about anything. You don't seem to be worried about whether the real estate market is going to come down or if the financial institutions are going to be in financial difficulty and the government will have to intervene. You don't seem to have any problem with funding pensions if the major automobile manufacturers go down. There doesn't seem to be any bother with you. All you do is keep repeating our questions. We have constituents who come to our offices asking what's going to happen to their pensions.

We just saw the same thing happen in Quebec, where the QPP just tanked 25%, and all they could say was that Warren Buffet decreased 30%, so they're okay.

Ultimately, the Canadian government is on the hook here.

[Jeremy Rudin]

Thank you. That's very helpful for me to better understand.

The government, as I said, is monitoring the situation very carefully and has taken action in a number of areas. In the budget bill that's before you, the government has sought additional powers in order to be able to deal with contingencies as they arise. There are additional powers for the Minister of Finance and for the Canada Deposit Insurance Corporation. This is evidence of the government's consideration of the possibilities that might arrive. It's not necessarily evidence that the government is worried about a particular aspect of the financial system, but rather that the government feels that it needs to have the authority to react quickly and in a responsible way.

On the pension front--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Sorry, but if you're not ready for anything to happen, you are not going to be ready to react whenever a crisis does happen. I don't feel reassured that you're ready for anything to happen. You're just going to wait for pensions to tank and for financial institutions to go down the drain and you're going to wait for real estate prices to go down another 20% or 30% and then you'll react. That's what it sounds like to me.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Mr. Rudin, do you want to respond to that? You have 30 seconds if you wish.

[Jeremy Rudin]

It was a statement, not a question, but it's certainly not--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I already asked plenty of questions and that's my statement. That's what I get from you.

[The Chair, Conservative, James Rajotte]

Order.

[Jeremy Rudin]

I would say that I would provide a different summary from that.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Has he answered any of your questions? Come on.

[The Chair, Conservative, James Rajotte]

Mr. Rudin, do you want to respond or not?

[Jeremy Rudin]

The government does considerable contingency planning. I was about to discuss what the government is doing on the pension side, but apparently I won't have time. It stands ready to do quite a bit more if necessary.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Good morning, Mr. Rudin.

I'd like to ask you a question on a different topic. I will not raise the possibility of the creation of a single securities regulator. You did not provide any clear demonstration of why such a major change is justified. In Quebec, our major financial institutions are attributing their current setbacks to asset-backed commercial paper. Those institutions are telling us that all of the references received by rating agencies were good. Specifically, we are talking about DBRS and Standard & Poor's, agencies that are controlled by the federal government. These agencies are paid by securities issuers, which in turn will provide suggestions or recommendations to the agencies so that their ratings are improved. Do you not believe that there is a conflict of interest within these agencies, as ultimately they misled many of our financial institutions?

I'd also like to know why the Bank of Canada still includes asset-backed commercial paper on its list of collateral? I think it's a major point that everyone continues to have doubts on. How is it that this component, despite its positive ratings, generated such huge losses for so many financial institutions?

[Jeremy Rudin]

I would like to clarify a point before beginning. Rating agencies are not regulated by the federal government.

Mr. Chair, we must make a distinction between ABCP that is issued by banks, and ABCP that is issued by other institutions. Non-bank ABCP was the source of the problems which appeared in August 2007. Restructuring was concluded in January 2009. The role of credit rating agencies has been raised by many people. It has also been raised in reference to the U.S. situation. Right now, the international securities organization is reviewing a code of conduct for rating agencies, and regulatory commissions are reviewing their own responsibilities and are considering the possibility of perhaps changing their role with a view to regulating rating agencies.

The Bank of Canada currently accepts bank-sponsored ABCP. The Bank of Canada recently adopted in-house rules concerning the eligibility of ABCP. These are new and rigorous rules.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

All right. Thank you.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Carrier.

I want to thank the witnesses for coming and for their presentations and responses to our questions.

Members, I will just remind you, if you have any further witnesses—we have e-mailed you a suggested list of witnesses by the analyst—for this study please submit them as soon as possible.

Thank you, members, colleagues.

The meeting is adjourned.