Finance committee  My understanding is that, as you suggested, the large Canadian market players did not get into the derivatives market to the extent that their European and American counterparts did. They did dabble in it but they tended to stick more to basic banking and investment vehicles.

Finance committee  That's right. These are changes to the financial plumbing or the financial infrastructure, to ensure that if we get into trouble in the future, with institutions going into default and this kind of contagion effect, the clearing systems that are designed to add stability to the system will hold up in these situations.

Finance committee  I can't. Again, I'm legal counsel at the bank. I'm not in a position to discuss that kind of analysis.

Finance committee  Well, systemic risk is the risk to the financial system that is caused by some kind of contagion passed among financial institutions.

Finance committee  I think I was almost finished the response to the last question. These amendments are quite related to the efforts to make sure that a financial crisis like the one that occurred in 2008 does not happen again, or at least one that's propagated by the derivatives market.

Finance committee  That's correct. It can start with one institution and then spread throughout the financial system, such as was the case with Lehman Brothers and the major insolvencies of the U.S. investment banks. It can also start in these major clearing systems. The clearing systems really act as funnels where unbelievable amounts of money are funneled and cleared through the system in money and assets every day.

Finance committee  It's really not in the purview of these amendments, so I'm really not in a position to respond to that.

Finance committee  I'm not going to look at each particular amendment, but generally, what these amendments are designed to do is to close the gaps in the legal protections that clearing and settlement systems have, and specifically these newer types of clearing and settlement systems called derivative CCPs.

Finance committee  Certainly, in regard to the measure that has been adopted by the G-20, going back to 2009, which obviously was part of redoing the whole regulatory structure to try to make sure that a financial crisis like that does not happen again. The commitment there was to try to contain the risk that's caused by these derivatives contracts, and the trading of derivatives contracts, by requiring that the trade take place and that, before the trade has settled, it be submitted to the essential counterparty so that the risk will be transferred from the original parties to the essential counterparty, which itself will be heavily risk-proofed.

Finance committee  Okay. The PCSA was enacted in 1996 primarily to address systems that settle payment obligations. While it's been updated since that time to provide for the clearing of securities and derivatives, many of the legal protections in the act are worded in a way that they simply do not apply to the clearing of derivatives contracts.

Finance committee  I guess I'd better hurry. Thank you very much, Mr. Chairman, and honourable members of the committee. The Bank of Canada is very pleased to appear before the committee today. What we've been asked to talk about to assist the committee are the amendments in part 4, division 3 of Bill C-45.