On Jan. 29, 2008, some of the most powerful public servants in Ottawa gathered around 6 p.m. for a meeting that was scheduled to last at least three hours.
Dinner was to be served, according to the agenda circulated in advance of the meeting of the Senior Advisory Committee, which is chaired by deputy minister of Finance and includes the heads of the Bank of Canada, the Office of the Superintendent of Financial Institutions, the Canada Deposit Insurance Corp., and the Financial Consumer Agency of Canada.
The date gives away the necessity of meeting well into a cold Ottawa night. Strains in global financial markets were making people edgy. It's the job of the Senior Advisory Committee, or SAC, to advise the finance minister about what do to at times like these.
Unfortunately, that's all I have to report on the meeting. The actual agenda, released under the Access to Information Act, is blacked out. No matter. There probably are legitimate reasons for doing so. The issue is more the SAC itself. It is the closest thing Canada has to comprehensive oversight of the financial system, yet it operates in obscurity. Before the financial crisis, this was acceptable, if only because we didn't know any better. We know better now. Financial regulation requires not only flashlights, but floodlights. Yet in Canada, systemic oversight still takes place in the shadows.
When Finance Minister Joe Oliver went to Europe in June, he boasted about how the country's financial system has been ranked the world's soundest by the World Economic Forum for six years running. The Financial Stability Board, the International Monetary Fund and even the Auditor General all have lauded the management of Canada's financial industry.
All that praise risks complacency. The countries where regulation and supervision were so clearly lacking have taken giant steps forward. The reputational advantage Canada earned during the financial crisis was deserved, but it is a title the country only will retain if it continues to make improvements.
The most glaring deficiency in Canada's regulatory structure is the absence of a national securities regulator. Prime Minister Stephen Harper is working on it. The addition of Saskatchewan and New Brunswick to what Ottawa is calling the Cooperative Capital Markets Regulatory System legitimizes a fledgling regulatory body that was lacking moral authority with only the federal government, Ontario and British Columbia on board. The head of the national securities regulator eventually will join the SAC and the Financial Institutions Supervisory Committee, another inter-agency panel that keeps tabs on developments in the banking system.
However, confidence in Canada's ability to prevent a financial crisis will continue to be only as strong as the public's confidence in the federal government. In Britain, the Bank of England has responsibility for deflating asset-price bubbles, otherwise known as macro-prudential regulation. In the U.S., a committee that includes the heads of the Federal Reserve, the Treasury Department and other regulators is in charge of systemic risk. The idea was to put the responsibility for curbing financial excess out of reach of elected officials. That's because the methods for doing do can be unpopular.
In Canada, macro-prudential regulation remains the responsibility of cabinet. Paul Jenkins, the former No. 2 at the Bank of Canada, and Gordon Thiessen, a former governor, flagged this structural flaw in Canada's regulatory regime in a report they wrote for the C.D. Howe Institute in 2012. More recently, David Longworth, a former deputy governor at the Bank of Canada, raised the issue in his own assessment of Canada's approach to financial regulation.
Mr. Jenkins and Mr. Thiessen said systemic risk should be the responsibility of a committee of regulators led by the governor of the Bank of Canada. "We believe that placing macro-prudential in the hands of the minister of finance would not provide the prompt action in response to potential system risks," they wrote.
The argument against Mr. Jenkins's and Mr. Thiessen's recommendation is a philosophical one: in a democracy, major decisions should be made by elected representatives. "I believe in elected people," the late Jim Flaherty, Canada's finance minister during the financial crisis, told me when I asked him in October 2013 whether he thought Canada needed a more rigorous regulatory regime. "I don't think bureaucrats, and God love them, should run the world."
Mr. Flaherty distinguished himself as a regulator. He tightened mortgage requirements on several occasions. In that interview, he acknowledged there was "pushback" in cabinet, including from the prime minister. That implies Canada's regulatory regime is as strong as the resolve of the finance minister. It's a tremendous responsibility, and one elected officials elsewhere have decided is better left to public servants whose primary motivation isn't getting re-elected.