Have we learned anything from the financial crisis?

Have we learned anything from the financial crisis?

Have we learned anything from the financial crisis? At a recent forum in Cambridge, Ont., the head of the Canada Deposit Insurance Corporation shared his thoughts on what – if anything – we’ve learned from the recent financial crisis.

“After some years of speaking in aspirational terms about resolution, we are now beginning to put policies into operation,” said Michele Bourque, president and CEO of the CDIC, speaking at the recent Financial Services International Forum. “It will require regulators and bank leaders to work together to get results. But the global financial crisis showed us the consequences of inaction.”

Bourque cited a recent speaking event hosted Colonel Chris Hadfield, the astronaut, on the importance of planning for catastrophic events that may never happen.

“He said: ‘If the stakes are at all high, it’s worth it,’” said Bourque. “The stakes in perpetuating ‘too big to fail’ are certainly high.”

The recent federal budget announcement that Canada’s systemic banks will be responsible for drafting their own resolution plans will be a definite topic of discussion, said Bourque.

“In my view, this is a positive step,” said Bourque. “Banks understand the structure and complexities of their business. So they are best positioned to prepare plans that are tailored to their specific business model, reducing the risk of us imposing broad, one-size-fits-all changes.”

However, CDIC, as the resolution authority, must challenge and test these plans, continued Bourque, since ensuring resolvability is a shared responsibility and CDIC is ultimately responsible for implementation.

“To build credibility, we need to involve the CEOs and the boards of our largest banks to ensure they are fully engaged and have confidence in their banks’ operational resilience,” she said.

Analyzing the operations of a bank from a resolvability standpoint can yield important insights, as some global banks have already recognized serious flaws and interdependencies that could prove harmful.

“Addressing these flaws in good times can lend strength and flexibility in times of turmoil,” said Bourque.