Governor Dodge Discusses the Importance of Transparency in Financial Markets

One of the clearest lessons to emerge from the recent financial market dislocation is the critical importance of transparency if debt markets are to function properly, Bank of Canada Governor David Dodge said today in a speech to the Canada-U.K. Chamber of Commerce.

The Governor noted that central bankers had been concerned for some time that credit spreads were not appropriately reflecting risk. So, they have welcomed the re-pricing of risk, which began in the spring of 2007. That process hit a rough patch in August, however, because many structured products were so complex and opaque that investors often couldn't completely see or understand the creditworthiness of the assets backing a particular security or ascertain its market value.

The re-pricing of credit risk continues, the Governor said, but because of the legal complexity and opacity of some of these structured products, the process may take somewhat longer than in previous periods.

Governor Dodge added that the importance of transparency should not be limited to money markets and debt instruments. "In my view, there is a clear case for transparency more generally in the operation of all financial markets," the Governor said.

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Related Information

September 12, 2007

A Clear Case for Transparency

Remarks David Dodge Canada-U.K. Chamber of Commerce London, United Kingdom
We have seen a remarkable continuation of robust global growth, fuelled by increases in international trade and facilitated by the continuing evolution and expansion of capital markets. Domestic demand began to grow more strongly in Europe and Asia and to slow in the United States, and this began to ease some of the concerns related to global imbalances that I spoke about during my last visit.