The head of the Office of the Superintendent of Financial Institutions said Tuesday that OSFI’s role is to regulate banks, not to regulate the third-party asset-backed commercial paper (ABCP) market.
“There are a lot of parties that play a role in financial stability. We are but one,” said superintendent Julie Dickson at a press conference in Toronto. “And our role is pretty specific, it is bank solvency. Investors are protected in this country. We do not have a mandate to protect investors, but other agencies do.”
OSFI does not oversee the firms that created the non-bank ABCP and these firms are not subject to OSFI guidelines, she explained. The firms that created the non-bank ABCP—like any firm offering securities to the public—have to abide by securities rules administered by provincial securities commissions.
Dickson added that if OSFI did decide to intervene, that questions regarding its role would have been asked because its primary role is to regulate banks.
“When you think through some of these questions and expectations that people had,” she said, “at the end of the day, I think I’m satisfied that we did the right thing.”
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Dickson also added that firms entering the market to sell ABCP chose to opt for general market disruption lines exclusively probably because they were cheaper compared to the cost of global style lines. One ratings agency, DBRS, gave top ratings to ABCP conduits with general market disruption lines while other agencies believed the risks were not balanced and would not rate the Canadian ABCP.
As well, a number of large sophisticated investors, such as the Caisse de dépôt et placement du Québec, assessed the risks and bought the product in significant amounts, further enhancing its acceptance in the marketplace.
“I think the marketplace has learned a lot of lessons. Some of these lessons have been learned before but they’ve been relearned,” Dickson said. “You have to understand what you’re buying, you have to insist on disclosure, you can’t be complacent.”
To comment on this story, email craig.sebastiano@rci.rogers.com.