Today’s Globe and Mail contained an op-ed piece by Ian de Verteuil which is supportive, at least in principal, of the opinion piece I had published earlier this year A Collateral Proposal.
Mr. de Verteuil is a research analyst with BMO-CM (and also a Chemistry grad!); he writes:
Since banks and insurers are regulated as to their safety and soundness, a “Reputationally Supported” or RS product would clearly have more value than a product that isn’t. A great example of this product is a money market fund. Banks around the world have essentially already committed not to “break the buck” and many here in Canada have gone to extreme lengths not to price these funds below $10. Other products such as straight equity funds and various structured products probably wouldn’t carry the RS brand.
I’m not saying that banks couldn’t sell the riskier products (as that would limit customer choice), I am just saying that we try to more clearly brand the product so the degree of support by the seller is apparent. If the bank wants to sell no RS branded products, so be it.
We both have the objectives of forcing banks to recognize their de facto exposure to branded Money Market Funds as an element of their balance sheet risk. Mr. de Verteuil proposes formalizing the process with an explicit “Reputationally Supported” moniker that would be assigned by the banks; my proposal does not include such formality but states that, for instance, “RBC Canadian T-Bill Fund” is reputationally supported by RBC simply due to the fact that they put their name on it.
Well … it’s nice to see some support for the idea!
Update: Mr. de Verteuil was a participant in the January ’08 CBA Investor Event … which I haven’t linked before, but don’t want to lose!