Some bad ideas just never go away.  A single securities commission is one of them.  Twenty years or so ago, Quebec and Alberta led the provinces in resisting Ottawa’s attempt to centralize financial power.  I remember it vividly because I was a rookie Minister responsible for Alberta’s Securities Commission at the time.  Pierre Fortier was my Quebec counterpart, and none other than Tom Hockin was Brian Mulroney’s point man on the file. Mr. Hockin backed off then, and he should back off again today.

The political climate is vastly different today, however.  Spectacular failures among financial institutions wrong-footed by the imploding asset-backed commercial paper (ABCP) market have spawned a ravenous appetite for new regulations.  Fair enough, but let’s focus on solutions that address the problem.  A single securities commission is not the answer.  Substantive new policies and regulations are needed, not centralized bureaucracy.   

Nevertheless, Mr. Hockin’s report shamelessly relies on the ABCP crisis to justify his proposal.  He says that Canada was slow to respond; that a single securities regulator would have done more to prevent or ameliorate the disaster; and that international markets demand national players.  He’s wrong on all counts.  Canada’s provincial securities regulators, acting in unison, have already proposed a number of substantive rule changes.  Many of them parallel US and international proposals, most of which are still in draft stages.  Furthermore, the idea that a national regulator would have been more effective is laughable.  If that were so, why did Wall Street crash and burn?  The fact of the matter in Canada is that the banks were responsible for over two-thirds of our ABCP market woes (and helped trigger the crisis for the other one-third). They’ve paid a heavy penalty for their participation, having taken writedowns equal to about 50% of their common equity positions over the past eighteen months.  But here’s the real kicker – banks are now and always have been federally regulated (it’s in our constitution).  So a new national securities commission will have no jurisdiction over the banks whatsoever. 

If anybody’s been slow to react, it’s the federal government.  Now it’s trying to convince us that a single securities commission is all that’s needed to deal with the credit crisis.  It is not.  But, once again, Canadians are being played for patsies.  Rhetoric seemingly trumps rational policy-making every time.

I thought the bond raters were as much at fault as anyone in the ABCP mess.  At least that's what Thomas Friedman said a month or so ago, and I believe it was the same here in Canada.  These bond rating companies happily issued AAA ratings so mutual funds, pension funds and even everyday investors could happily put their money into ABCP just like it was a GIC or a Treasury Bill.  Securities commissions don't regulate the bond rating companies.  So that would be another piece of the puzzle that Flaherty's plan would fail to cover.