FM: Is it a better market?
JT: It depends on which chair you are sitting. It is always better if you are the guy who is the casino head and there is lack of transparency and wide margins. That was hard for a lot of institutions to adjust to. But from a global growth perspective, having deep, liquid, fully transparent markets serves everyone well and the more participants you have that have access to those markets in a positive way [the better]. The markets over time have grown appropriately with the global economy and have continued to serve all the global economies incredibly well. Even in the crisis this market performed flawlessly; the spreads widened out a little bit, there [were] some credit concerns, there were some people who couldn’t get stuff done because of who they were but generally speaking the markets contributed beautifully. And the banks and institutions, as these market have become $3 trillion a day, have continued to find ways to mitigate the risks that come with being so big. The prime example of that is the Continuous Link Settlement Bank (CLS), which now is a consolidator of settlement risk where we are really looking to take risks out of the market and create a sense of confidence. The banks got the settlement risk issue on their plates ahead of regulators.
It is all part of the market evolution, the transparency we just talked about is all good; it serves the ultimate client in the global economy better than a very expensive, non-transparent market.
FM: How have the players changed?
JT: The players have become more diverse and there is some legislation around the Volcker rule and the OCC legislation where they are worried about protecting people from going into the foreign exchange market, so that may change again as Dodd-Frank and Volcker and some other changes come into play.
FM: Talk about regulation in the U.S. and Canada.
JT: Canada’s banking system is completely different than the United States’. There are six schedule A banks that are regulated by OSFI (Office of the Superintendent of Financial Institutions), they have branches everywhere. There’s not the diversity, there is not the ability [to start up new banks]. We can do that in the U.S. We do not have the federalized banking system that Canada has. There is less ability to get into trouble.
The oversight of those six banks can be a lot more thorough because there are only six and the country is a lot smaller. It has the ability to be better regulated. It is quasi-governmental in that you have to have a government charter in order to participate. It’s harder given the size and scope of what’s going on in the U.S. to effectively regulate. Having said that, the Canadians did an amazing job in a very difficult time of making sure there was solid oversight of all the banks. They performed exceptionally well. I joked around after 2008, who would have thought it would be sexy to be Canadian? You say ‘I am from the Bank of Montreal’ and people would yawn in 2007 and in 2008 they would be opening the door and saying ‘let’s talk.’ Boring and highly regulated [have become] very attractive.