According to press reports Ed Clark the chief executive of the TD bank is very critical of the proposed bail-out of the asset backed commercial paper market. Clark whose Bank appears not to have had any serious exposure to the dubious assets is arguing that since his bank was not involved in taking the original risk it would be wrong for it to be involved in the bail-out. According to a report in the Financial post Dec. 18, 2007 Clark suggests that the problem is one for the risk takers to solve alone. "Those that are involved and thought they were going to make a profit that then goes sour, should step up to the plate proportionate to the degree that they were involved. "
He claimed that TD would willingly provide liquidity but only if it involved no risk. In other words the loans would have to either be guaranteed by the Government or by blue chip assets, which in any case are never 0 % risk.
This tough "its your problem attitude" may well please TD stock holders but it is bound to displease other members of the banking community and the Bank of Canada. It is a sign that much tougher regulation of the financial derivatives markets in Canada is in order. If the ABCP crisis is not resolved by an appropriate combination of writedowns and bail-outs the entire banking community and the broader Canadian economy will suffer. Mr. Clark's position is an interesting straw in the wind that will bear watching.
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