Finance committee  People are covered. If you are an investor in a security in Canada, you are covered by the securities commissions. My job is to look after banks and bank depositors. If you're an investor, you're covered by securities commissions.

Finance committee  I wanted to note that protecting bank depositors is a very important job, as is protecting investors. There are securities commissions whose job it is to protect investors. I think that is where my mandate ends and where theirs begins. I know they are taking it very seriously as well.

Finance committee  There was no alarm to be sounded around the world or in Canada because the market was functioning. We did, as regulators, talk about the complexity we were seeing and the fact that triple-A-rated instruments were being created out of other things. We were questioning whether that was appropriate, but we were focusing on risk to banks.

Finance committee  Could you ask the question again?

Finance committee  In 2005 a report went out in great detail on issues with complex products. That was on every regulatory website in the world. I had a speech out in April, which is on our website, that talked about the complex products being bought and the fact that triple-A-rated securities were being created out of other products.

Finance committee  Well, it was an issuer of securities, so from that perspective it comes under the jurisdiction of securities commissions. When I say it's not regulated, I mean it's not regulated by us for solvency. No one is making sure that Coventree is regulated like a bank for safety and solvency, but all the securities that are issued are covered by securities laws.

Finance committee  Well, we are going to issue a revised B-5, and that's one of the issues we're going to deal with in B-5, which has been written. We'll put it out quickly. B-5 originally dealt with the kinds of roles banks play in setting up conduits. We read a few newspaper articles that suggested that certain conduits were bank-sponsored when they were not.

Finance committee  Yes. Guideline B-5, as an example.... The market is not changing right now, in the sense that it's not growing and people aren't developing new products, etc. From that perspective, we didn't need to get that guideline out within two weeks of this crisis hitting. But for sure, all of our material goes on our website.

Finance committee  What we were focused on was the exposure of banks to that marketplace. Whenever there is discussion about a market, whether it be real estate, telecom, you name it, what we're focused on primarily is banks' exposure to that market, because if something happens...it's often difficult to predict exactly what will happen.

Finance committee  I can elaborate on that. My message was that when banks set up conduits, asset-backed commercial paper conduits, the theory was that they had transferred the risk completely to investors. When Coventree, an unregulated player, set up a conduit, the theory was that it had transferred risk completely to investors, so that the only thing investors had to look at was what was in the conduit, what mortgage loans or car loans were in the conduit.

Finance committee  The investors who were investing in these products legally were relying on the conduit only. I think some of the ratings given to conduits may have implicitly taken account of the fact that the bank was a sponsor, but at the end of the day, perhaps not as much as it could have, because the paper issued by unregulated conduits was given the same kind of rating as paper issued by bank conduits.

Finance committee  When did we recommend changes? It depends on what “changes” are. This problem began to surface on Friday of a long weekend, so we were meeting on the long weekend with the Bank of Canada and others. I think immediately steps started to be taken to find out who owned this asset-backed commercial paper, particularly among the institutions and pension funds we oversee.

Finance committee  We're talking about complex products in general and the fact that some banks didn't have these products and didn't have these problems--like TD?

Finance committee  The way it works is as follows. We set the capital requirements and liquidity rules--but capital requirements primarily. If you're going to get involved in complex products, if you're going to be investing in complex products, the focus is capital. There was a lot of discussion, not only in Canada but around the world, about complex products, because these were evolving quite quickly.

Finance committee  First of all, it's the institutions that have to say whether they're understanding it or not. One institution can say they don't understand it and another can say they understand it completely. But it is our prerogative. This is what institutions are doing around the world. We need to be able to compete.