QUEBEC CITY, May 6 /CNW Telbec/ - Yvon Charest, President and CEO of
Industrial Alliance Insurance and Financial Services Inc., shared some
personal reflections on the current financial crisis at the company's annual
general meeting. After discussing characteristics of the crisis that most
impressed him, Mr. Charest proposed a number of ways for public authorities to
envisage solutions for preventing a similar crisis.
Characteristics of the crisis
Without attempting to make an exhaustive analysis of the crisis, Mr.
Charest nevertheless gave some overall impressions by presenting some of the
main characteristics of the crisis. In his opinion, the crisis has several
- A value crisis - The crisis underwent several transformations: it
started as a traditional bubble in the United States real estate
market, transformed into a financial crisis, metamorphosed into an
economic crisis, and became, in certain respects, a value crisis. As
such, it caused us to call into question our beliefs, our doctrines and
our ways of doing things.
- A baby boomer crisis - The crisis was man-made: it's the result of
recent financial inventions and public policies set up over the past
few decades, with our support in many cases. It's the crisis of a
generation, that of the baby boomers.
- An unpredictable crisis - The crisis was, to a certain point,
unpredictable: the majority of experts and qualified leaders, including
those in charge of the economy, didn't see it coming, even if all the
ingredients that led to the crisis were set into place under their very
- The first globalization crisis - The crisis is the first of the
globalization era: it covers the entire planet and shows that
globalization, despite it beneficial effects, can have a flip side.
- A crisis of excess - The crisis can be characterized as one of excess:
an excess of low interest rates, which stimulate spending instead of
saving, and encourage households to take more risks than they would
normally take; an excess of deregulation, especially of financial
institutions, while the securitization at the origin of the crisis
occurred outside of any regulatory framework; excess household debt;
and an excess of compensation for a number of corporate executives.
- Failure of self-regulatory safeguards for the economy - The crisis
demonstrated the limits of self-regulatory safeguards for the economy.
Without appropriate regulation as a counterbalance to private
interests, the economy doesn't necessarily balance itself out, rapidly
To prevent another crisis such as the one we're experiencing from
happening again, Mr. Charest proposed possible solutions, such as:
- Concerted action among governments to supervise financial institutions
on an international level, so that poorly-regulated institutions in one
country do not "contaminate" other countries.
- Regulation of all financial activities, both on and off balance sheet.
- Much tougher capital requirements in countries where they are not tough
enough. In Canada, for every dollar of capital, banks can have 20
dollars of assets. Leverage of 1 for 20. In the US, this leverage could
go from 1 for 45 for certain types of institutions, and in Great
Britain, up to 1 for 60.
- Anti-cyclical capital requirements, which would allow companies to
build safety cushions in times of prosperity and to use them in times
- A reconsideration of accounting at fair market value, which doesn't
take into account the long-term nature of a life insurance company's
commitments, and which creates useless fluctuations in company results,
which have nothing whatsoever to do with their earning power.
- A reconsideration of the conversion to International Financial
Reporting Standards, which risk exacerbating problems caused by
accounting at fair market value and also risk creating even greater
fluctuations in company results.
- Improved disclosure and transparency, so that everyone, sellers and
buyers on financial markets, has the same information on complex
- Concerted action on an international level to fight against tax havens.
- A thorough examination of executive compensation, which is excessive in
some cases, which is not always tied to risk, and which should take
into account internal fairness in a company, as well as fairness
Mr. Charest concluded his speech with a comment on the public's reaction
to the current crisis. "When I saw the public outcry over executive
compensation at AIG, I realized the full extent of the power wielded by the
people. In times of crisis, I have the impression that public outrage is
powerful motivation for governments to take action. However, anger distracts
from clear thinking and detracts from sound decision making. If we don't want
the public, through its outrage, to impose solutions on us, it's best that we
ourselves put solutions in place. And the sooner the better."
About Industrial Alliance
Founded in 1892, Industrial Alliance Insurance and Financial Services
Inc. is a life and health insurance company that offers a wide range of life
and health insurance products, savings and retirement plans, RRSPs, mutual and
segregated funds, securities, auto and home insurance, mortgage loans and
other financial products and services. The fourth largest life and health
insurance company in Canada, Industrial Alliance is at the head of a large
financial group, which has operations across Canada, as well as in the Western
United States. Industrial Alliance contributes to the financial wellbeing of
over three million Canadians, employs more than 3,400 people and manages and
administers over $49 billion in assets. Industrial Alliance stock is listed on
the Toronto Stock Exchange under the ticker symbol IAG. Industrial Alliance is
among the 100 largest public companies in Canada.
For further information:
For further information: Jacques Carrière, Vice-President, Investor
Relations, Office: (418) 684-5275, Cell: (418) 576-3624,