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The advocates for financial reform slog on, despite a blowback against the campaign to re-regulate Wall Street.  President Obama has shoved Paul Volcker in front of Congressional committees and TV cameras to push the “Volcker Rule” limiting the size and trading activities of major banks. Meanwhile, the House Financial Services Committee, under the chairmanship of Barney Frank (D-MA), passed a bill to establish a new Consumer Financial Protection Agency (CFPA), to create a council of regulators to oversee systemic risk, and install stricter standards for alternative funds and credit-rating agencies (and other protections). Given that the market crash (and longer market cave-in) has been blamed for trillions of dollars in retirement and household asset losses, the cry for reform still burns. Has the Frank proposal worked anywhere else? Yes: In Canada.

The World Economic Forum declared Canada’s banking system was soundest last year. One of the reasons it’s so sound is because it’s better regulated.  A key regulatory agency is the Consumer Agency of Canada (FCAC), which was founded in 2001 to strengthen oversight of financial services and consumer issues.
 
I asked Bill Knight, the first Commissioner of the FCAC (serving from its inception until 2006), whether or not the proposed CFPA (modeled after the FCAC) and other reforms might help. He believes the House bill would aid in protecting American investors and consumers. One of the other parallel protections in the bill is the council of regulators.  Knight noted that the U.S. has seen what happens when the intelligence agencies don’t talk to one another.  It’s the same with the regulators. “Your financial regulatory system is like a bunch of amusement park bumper cars,” he joked.  “Your regulators want to showboat, and every cowboy is competing for headlines.  Then, when they fall on their face, the other regulators let them hang.”   

Knight explained Canada's four common sense approaches to financial regulation:

One: The Financial Institutions Supervisory Committee (FISC)
This council of regulators meets and works together regularly in a team effort. The FISC Team includes the Governor of the Bank of Canada, Superintendent of Financial Institutions (OSFI), Canada Deposit Insurance Corporation (CDIC), the Deputy Minister of Finance and Knight’s former position, the Commissioner of FCAC.

If anything were happening that might create systemic risk, this team would provide informal pressure. For example, Scotia Bank and a couple of other banks announced they would get into the sub-prime mortgage space. The FISC Team leaned on the banks, and the banks folded.  At other times the action would be formal. 

Two: Stronger Public Sector Housing Role    
When financial markets tightened in Canada, the government used Crown Corporations (public entities) to ease lending, and did so with the support of regulators.  Unlike its U.S. counterparts, Fannie Mae and Freddie Mac, the Canada Mortgage and Housing Corporation (CMHC) was never privatized, so government finance leaders and regulators could better monitor CMHC.  However, the FISC Team could act against the Crown if it moved too far in terms of risk and exposure.  

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