TORONTO, Jan. 25, 2012 /CNW/ - Canada should improve its oversight of financial stability in the economy with a watchdog committee co-chaired by the Bank of Canada and Finance Canada, according to a report released today by the C.D. Howe Institute. In Financial Stability: The Next Frontier for Canadian Monetary Policy, McGill economist Christopher Ragan says the next goal of monetary policy, in Canada as elsewhere, is to achieve and maintain financial stability in the economy.
"While the Bank of Canada's monetary policy has traditionally, and very successfully, focused on maintaining low inflation, playing a leading role in this committee would allow it to participate in mitigating financial excesses while enhancing the capacity of the financial system to absorb shocks," says Ragan. "Canada weathered the recent financial crisis well, but a better system could improve the odds of forestalling the next one."
- The maintenance of financial stability in Canada should be added to the mandate of all members of the existing informal Senior Advisory Committee (SAC), which brings together various departments and agencies.
- The new committee should be underpinned by legislation, and its formal minutes should be sent to the minister of finance. Its membership should be expanded to include the CMHC (or its financial arm) and, if one is eventually created, a national securities regulator.
- The federal government should ensure that all SAC members have the appropriate resources to understand more fully those aspects of the financial system that are beyond their direct concern.
- The Bank of Canada should take a clear leadership role within SAC, and the governor of the Bank and the deputy minister of finance should co-chair the committee.
- The co-chairs should make clear policy recommendations directly to the minister of finance, who would be ultimately responsible for all policy decisions.
For the report go to: http://www.cdhowe.org/pdf/Commentary_338.pdf
For further information:
Christopher Ragan, Associate Professor of Economics, McGill University and David Dodge Chair in Monetary Policy, C.D. Howe Institute; or Philippe Bergevin, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904; email: [email protected].