Who currently has the right to access the actual trading records of Canadian banks?
March 12, 2010 - 11:21am
I'll repeat these questions posted under World Financial Crisis because maybe some aren't reading that thread.
Who currently has the right to access the actual trading records of Canadian banks?
Can some Canadian banks choose to delay reports of losses, caused perhaps their own unreported trading in derivatives markets, and cover those losses by expanding into commodities, and further financial trading?
The situation seems parallel to one in our area some time ago:
A company profitting from water-taking and trading was the only one measuring and reporting on actual volumes taken and transferred to different operations.
No one really knew where the water was going, how much was involved, nor what the associated financial transactions were.
The company bankrupted itself through, it seems, over-extension (it became involved in some risky financial deals and dependent upon water-taking permit expansion.)
Residents of the area, concerned with the lack of valid measurement and experiencing water shortages, organized to prevent unrestrained water-taking permit expansion.
Apparently some financial institutions still hold remaining assets.
We still don't know any of the details because of privacy-protection.
As with the water-taking company,
perhaps Canadian banks and accountants in conflict-of-interest are the only ones with access to financial transaction records.
Canadian banks could be involved in risky derivatives trading, not just CIBC, and could be covering losses by expansion in commodities, dependent upon loosely-given permits in the tar sands, water-takings, and privatizing policies which hand them or affiliates further control over public resources, data, auditing, and finance.
When, if, those expansions are limited by concerned residents, we may find more losses and bankruptcies revealed.
Residents may lose savings but core assets will be retained by a few surviving financiers.
And the nonsense will continue.
Thus the question in the subject title here is very important.
I'm thinking that OSFI (Office of the Superintendent of Financial Institutions) has that right for both banks and insurance companies. See
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=568
Residents may lose savings beyond those guaranteed by the CDIC, but even the functions of the CDIC are being privatized.
McGuinty is privatizing the functions of the Ontario Deposit Insurance Corporation under Harper's WTO procurement deal.
As noted in the Public Services thread ( http://www.rabble.ca/babble/introductions/public-services) and elsewhere, Harper and Flaherty are privatizing federal financial functions.
Guarantees in the system simply won't exist, except through the increasing expansion of economic/ecological destruction.
It makes a lot more sense to stop the privatizing nonsense now, mandate public access to banker and financier transactions, see where everthing stands, and make sensible decisions on public funds and resources, including funds and resources currently hidden behind privacy protection.
It seems the precursor to the Public Services thread is not available at babble.
Here's the text of the Harper procurement deal with provincial inclusions:
http://www.international.gc.ca/trade-agreements-accords-commerciaux/asse...
Under Annex Four, Harper has listed services which enable even foreign financiers to do their own measurement and ours.
McGuinty's inclusions listed in the Annex 2 include the Deposit Insurance Corporation of Ontario.
Each time Liberals or Conservatives have cut public staff, including as outlined in the recent Conservative Budget, by Flaherty in Finance and financial services as reported by the CBC, or earlier by Liberals in federal public civil service cuts, these operations become privatized.
Financiers do their own measurement.
Maybe the combined operations of public and private are already so intertwined that residents' finances are completely at risk.
The sensible action would be to stop the carousel and get clarity on all records.
Harper in his procurement deal with the US has included federal services in
'auditing, accounting, book-keeping, data, software systems design analysis programming and maintenance, management, taxation, real estate, technical testing and analysis including quality control and inspection, forest management, mining field and drilling, repair, electronic mail, voice mail, online information and database retrieval, electronic data interchange, online information and data processing including transaction processing...'
Those are the words in the text.
Federal offices whose staff are cut through Flaherty's budget can have their functions in auditing, accounting, book-keeping, data, software systems design, analysis, programming, management, quality control and inspection, and transaction processing carried out by the same private financiers and insurers that a given office is supposed to be auditing.
With respect to your OP my guess is either OSFI or an auditor views the actually assets of a bank. I know that banks have to report high level numbers for their assets to OSFI but I'm unsure as to how often looks directly at a banks assets and how often they rely on word of third party auditors and actuaries.
With respect to the CDIC I don't think it will ever really be a private corporation though it could technically be more influenced by the private sector. At the moment it's funded by the private sector, half the board are private sector reps and the other half public sector reps. The chair (who is the tie breaker) is a public sector representative, though I'm unsure at the moment if they rotate between a public and private chair or if constitutionally the baord has to be dominated by public sector representatives.
As a contrast the insurance industry is protected by guarantee funds primarily Assuris and Pacicc. These guarantee funds are non-profit corporations not crown corporations. They are funded by the industry and thier boards are controlled by industry representatives with minority public presence.
The Supervisory Framework Rating Assessment Criteria at http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/practices/supervisory... states that risk assessment "is mainly qualitative".
A financial institution's Financial analysis, for example, is checked only by assessing whether the company's internal analyst has access to financial records, not that the federal risk assessors have access to financier's records.
In fact in assessing Capital and Activities, the Office depends upon the financial institutions' self-reporting, and externally available information regarding industry practices generally, site visits and 'monitoring', but even this qualitative 'supervision' of industry self-reporting can only be 'as necessary' for risk assessment. 'As Necessary' represents another legal trade deal block to access.
It does not appear that the Office of Superintendent of Financial Institutions Canada accesses financiers' records directly.
If the CDIC and the insurance industry is funded by the private sector, and if the private sector is into risky stuff and overextensions, then the CDIC and those insurers aren't really solid insurance at all.
It seems that resident's finances, even those supposedly 'protected' by the CDIC, are already up the proverbial creek without a paddle.
I wonder if public officials have ever been able to access financiers' records, in history.
Regardless, we need to access the records of private financiers and insurers to ascertain if indeed the CDIC and other institutions are not already bankrupt.
If public and private institutions are already bankrupt then we need to get together as communities and through existing forms of public participation to figure out what to do next; to essentially start from square one and provide for peoples' needs and a safe healthy planet.
I'm getting lunch and some exercise while thinking.
I noticed a thread on steps to direct democracy.
As no politicians currently seem to be asking the necessary questions about access to financial records, direct democracy is an alternative. will have to see that later.
I don't know of the CDIC's capcities but the insurance industry is covered in about 95% of cases. I'm not sure what the objection is to privately funding these entities. Should a bank or insurance company fail who would you want to be on the hook for the bill first, the industry or the tax payer?
As thanks says, our banks have lost money before with gambling in foreign stock markets, oil and gas, and real estate fiascos of the 1980s and 90s. Our increasingly deregulated banks have lost a lot of money since the 1980s, and Canadians have bailed them out big time. Our big six banking monopolies have tried to convince Ottawa that they should merge so as to gamble bigger and better alongside their much larger American counterparts. The NDP and other groups kept up the pressure against concentration of banking over the years, and then neoliberal ideology collapsed beginning in 2008.
Which supports Thanks' point about the need for better public transparency in how financial institutions operate, which for the record I support. It has nothing to do with the discussion of how the CDIC funded so I'm not sure why you would bother quoting me as you did.
It is incorrect to say that the OSFI can demand access to records at any time. That is the meaning of the phrase 'as necessary'.
To access records, the OSFI has to prove first that it is necessary, but if the financial institution only allows relatively positive information to be reported, then the OSFI has nothing to go on to prove that access to actual financial records is necessary.
It's a circular loophole.
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I looked at materials from the Canada Deposit Insurance Corporation, a brochure which is probably also online:
"CDIC's member institutions fund deposit insurance through premiums paid on the insured deposits that they hold. If required, CDIC is authorized to borrow additional funds, which CDIC repays with interest."
CDIC Member Institutions are over 80 banks, trust Companies, mortgage and insurance financiers, including Canadian branches of global banks.
www.cdic.ca
When I first put some money in a GIC, the bank personnel told me the deposit was 'guaranteed by the Government of Canada'. Then that person made a correction and said, 'I mean the Canada Deposit Insurance Corporation.'
The tone was such that the bank staff gave the impression the two were effectively the same. They are not.
I actually might have some trust in depositing in a bank if deposits were guaranteed by the government and taxpayers.
As it stands, deposits and GICs are only guaranteed, where they are guaranteed at all, by the private institutions themselves.
And, as we know, no one is allowed to look at the books of these private institutions except themselves, unless it's 'necessary'.
Apparently Harper didn't even considered it 'necessary' to direct staff at the OSFI to examine the books of these institutions when they were so in hock that they needed 200 billion dollars of taxpayers' money.
If that wasn't call for some public examination of transactions records, I don't what could be.
Which supports Thanks' point about the need for better public transparency in how financial institutions operate, which for the record I support. It has nothing to do with the discussion of how the CDIC funded so I'm not sure why you would bother quoting me as you did.
Thanks and I are also concerned about privatization schemes for CDIC. Why would privatization of CDIC work any better here in Canada than it did for AIG in the states, or TIF in Iceland? Why would we want to increase neoliberalization of banking and finance here in Canada when it hasn't worked worth a darn in other countries?
It's also a concern that Harper made changes to the Bank of Canada Act, as was discussed at the Progressive Economics Forum in 2008, changes which allowed the central bank to bail out financiers without posting public notice anywhere.
Financiers just had to apply and self-report that they weren't going to trade in certain derivatives, but again no one is checking their actual transaction records.
And as noted above, if the financiers procure federal auditing and related operations, they'll have direct self-regulation.
I don't know a lot about the TIF in Iceland.
I think the deal with privately funded TIF and AIG is that their very competitive premiums were too low to cover the risks they were insuring. Iceland became a poster country for Milton Friedman's liberalization schemes at start of the 1990s. And apparently the godfather of neoliberalism in the states, Alan Greenspan, gave the wink to deregulated banks and insurers that they would utlimately be considered too big to fail by US taxpayers. US taxpayers were never consulted on the issue. American Michael Hudson wrote in 2003 that Wall Street banks had become parasitic at the expense of the real economy. Fascists have a notorious history of deliberately sabotaging economies as a prelude to more corporatism.
"their very competitive premiums were too low to cover the risks they were insuring."
surely there was more to the problem than that.
you mentioned privatization.
"their very competitive premiums were too low to cover the risks they were insuring."
surely there was more to the problem than that.
you mentioned privatization.
Well I think there was more to it than this for sure. Everything worked for Carlo Ponzi until the feds caught up with him, too. But private insurers are only so big and have tended to take on more business, and risk, than they can handle if things turn sour. Banking and finance is more integrated around the western world than ever today. Wikileaks published reports of Kaupthing corruption where loans were made to insiders and helping to drive the bank into insolvency. And there is a lot more to it than this for sure.
some useful links at this prior discussion;
http://www.rabble.ca/babble/introductions/harper-hides-fraudulent-bankin...
notably, the first link to the Nation article which quotes the head of the US Federal Deposit Insurance Corporation stating she couldn't access the records needed to do her job propertly.
http://www.thenation.com/doc/20100201/kaufmann
"FDIC Chairman Sheila Bair testified that the credit-default swaps (CDS) market still poses a systemic threat and that even she can't access CDS information to accurately assess financial institutions' exposure."
The CDIC is already effectively privatized. Its members are all financiers and insurers. Its funding is private.
The Office of Superintendent of Financial Institutions can't access transaction records ('as necessary' circular loophole).
If premiums the private members pay aren't sufficient to cover bankruptcies, and if reserve requirements are insufficient, the Bank of Canada and taxpayers bail out the private players to rescue the system including consumer deposits.
The obvious solution is to mandate increase of the premiums the private institutions pay and to increase reserve requirements, but no one knows how much that amount ought to be as no one accessing the financiers' records to determine how much or what is at risk.
its unfair to restrict public access based on what is 'necessary' when the public foots the bailout bill.
I would say that's true for most of the western world. China's CCP has statutory reserves for commercial banks. And I think India does, too. And both of those economies are full steam ahead through this neoliberal meltdown in the west. State-owned banks in those countries and Singapore have been lending money at a frenzied pace while deregulated private banking in the US and Britain have been allowed to finance their own bailouts.
Thanks I'm inclined to agree with you but I'm unsure what would be an appropriate solution. To my knowledge financial institutions tend to be fairly forthright with regulators unless they're attempting to cover up fraudlent activity, in which case even under greater oversight they'd likely find one way or another hide what's going on. The cost to monitoring banks more closely would be fairly significant and the current state of things seems to imply that OSFI doesn't consider it worth the cost to do so.
One solution would be to require the banks to hire external auditors to double check their books to ensure both that their private accounts are accurate and that their public disclosures correspond to these accounts. It's my understanding that this is the current state of things, though I can't for the moment come up with a source to confirm this and I'm not really sure as to the detailed dynamics of the system. The benefit to such an approach is that the banks internalise part of the cost of monitoring, the down side is that since the auditor is hired by the bank it creates conflicting proirities for the auditor.
You could suggest making the banks' books open to the public not through OSFI but actually making them publicly available to everyone. This solution is potentially functional but there's a lot of complexities as to how this would be implemented. I'm not inclined to get into the details of this unless you insist since it seems reasonable to assume that it would be impractical for Canada to take the first step in a move like this. It's my view that a solution such as this would have to be part of a coordinated effort by a number of countries or that a single party more significant than Canada would have to take the first step.
Fidel, to your point, I can't seem to make the connection as to how the difference between reserve requirements and capital requirements would explain the difference you point out. Most would claim the problem lied with under regulation in lending and asset backed securities not in solvency standards. If you're suggesting a problem with capital requirements as a solvency measure I'm going to need more details from you.