The G-20 has what is called the ministers and governors, who meet before the leaders. And of course the ministers and governors, having discussed the situation, will be informing their leaders individually and probably making a recommendation. And the leaders will be deciding in early April on a course of action.
What we are doing, in a sense, is preparing the ground. Below the governors and the ministers, of course, there are meetings of the deputies. One of our deputy governors, John Murray, and Tiff Macklem, from the Department of Finance, who was here yesterday, are G-20 deputies.
As Tiff told you yesterday, there is a diversity of opinion. There are a wide range of solutions that have been contemplated. There are two issues. In the short term, what more do we do, given that the situation has deteriorated. I think the plans to resolve the financial crisis are just about the right plans, and the question here is the execution and the timeliness, so it is imperative to go forward on that.
The second part is that once you win the war, you have to think about the reconstruction and how you prevent something like that from happening again, talking about the regulation of the financial system. That's where, in a sense, there are a variety of views. But I think there is a coming together that some things are important, such as macro provincial regulation and having capital regulations where capital is built up during the upside of the cycle so there is a buffer that can be used to absorb shocks when they happen.
We also want to avoid pro-cyclicality. There is a sense in financial systems that things tend to get amplified by the reactions of people. So we're asking if there is anything that can be done from a regulatory point of view to limit this amplification, which is a part of nature. When things are good, you're optimistic; you understate risk. When things turn bad, all of a sudden the irrational exuberance gives rise to panic. So just as the risk is understated in one case, when you get a string of bad news, risk gets overstated. So how do you try to set a financial system that would be robust to that?
And the third point that's important is, in a sense, the alignment of incentives. Regulation always sets incentives to bypass it, so ensuring that there is a system-wide approach so that the incentives are aligned.... For example, in the ABCP there was a misalignment of incentives because of the original distribution model: the people who were making the loans did not keep any. They were just making loans, sending them, and had no incentive to do a verification of the credit quality of the loan. So alignment of incentive is important, and of course transparency and clear disclosure.
In the context of the ABCP crisis, one of the big problems, as we discussed earlier with Monsieur Laforest, is that disclosure was not adequate.