After the Reference: Regulating Systemic Risk in Canadian Financial Markets

• Author: Anita Anand
• Pages: 197-221

• 197

  

Aer the Reference:

Regulating Systemic Risk in

Canadian Financial Markets

Anita Anand1

A. Introduction

        

       

markets, believing that such risk could cause the markets that

they oversee to implode. At the same time, they have demonstrat-

ed a certain inability to develop and implement a comprehensive

policy to address systemic risk. This inability is likely due not

only to indeterminacy inherent in the term “systemic risk” but

also to existing institutional structures which, because of their

  



   

central to the current inquiry. In this chapter, using the Supreme

Court of Canada’s recent decision in the Securities Reference case

as a springboard,2 I analyze and clarify the term “systemic risk”

   

crisis. I then propose the creation of a systemic risk regulator for

Canada, the Financial Market Regulatory Authority (FMRA).

1 Thanks to Jeff MacIntosh for very helpful comments and to Grant Bishop,

Adam Curran, and Chava Schwebel for excellent research assistance

funded by the Social Sciences and Humanities Research Council of

Canada.

2 Reference Re Securities Act, 2011 SCC 66 [Securities Reference].

 •  

The main holding in the Securities Reference case is the

rejection of the federal government’s proposed statute3 as a whole

because it falls outside the general trade and commerce power

in the Constitution.4 The Court further held, however, that

       

trade and commerce power and are therefore constitutional. The

     



       

viable n ational s cheme. With t he Supreme Cou rt’s endors ement

of the federal government’s jurisdiction in regulating systemic

risk, questions arise: What is systemic risk, and how (if at all)

should it be regulated?

The term “systemic risk” inspires ambiguity, despite the

volumes of academic writing in this area.5 While many agree



institutions such that the failure of one may lead to the failure

    

which the risk should be crystallized and whether the contem-

         

entire economic system.6 This chapter weeds through various

3 Proposed Canadian Securities Act (25 May 2010), online: Department of



4 Securities R eference, above note 2; Constitution Act, 1867 (UK ), 30 & 31



5 This writing is reviewed and discussed in Steven Schwarcz, “Systemic

Risk” Duke Law School Legal Studies Resear ch Paper No 163 (March

 

Securities Regulation?” (2010) 60 UT LJ 941 [Anand]; Miquel Dijkman,

A Framework for Assessing Systemic Risk (World Bank Policy Research



Hartmann, Systemic Risk: A Surve y (European Central Bank Working

Paper No 35, November 2000); George G Kaufman & Kenneth E Scott,

“What Is Systemic Risk, and Do Ban k Regulators Retard or Contribute to

It?” (2003) 7:3 The Independent Rev 371 [Kaufman & Scott]; John Taylor,

 

& John Taylor, eds, Ending Government Bailouts As We Know Them



João AC Santos, Bank Capital Regulation in Contemporary Banking

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6 See Kaufman & Scott, ibid.