By Jeffrey Jones
CALGARY, Alberta (Reuters) - Problems in Canada's asset-backed commercial paper market could take months to resolve but financial authorities are keeping a close eye on the sector, Finance Minister Jim Flaherty said on Thursday.
Troubles in Canada's ABCP sector had exacerbated a global credit crunch that had emerged from the U.S. subprime mortgage market, and Flaherty said initiatives taken so far were supporting the smooth running of financial markets.
"Our government and the Bank of Canada continue to monitor the situation closely as it unfolds," Flaherty said in a speech.
He later pointed in particular to a Montreal agreement earlier in the month under which a number of financial institutions agreed to convert the short-term ABCP into longer-term notes.
"We have the Montreal accord, which gives us some time and gives investors some time to look at the asset-backed commercial products, and to make determinations of the value of them. This us gives us some latitude to deal with the issues. This is a concern though, and it's a concern internationally," he told reporters.
"It has to be worked out, and it may take some months for the problems to be worked out. People need information, investors need information. They need to know what is in this basket of asset-backed commercial paper."
In his speech, Flaherty spoke of both the country's strengths as well as some of the risks facing it.
"The Canadian economy is the strongest it has been in a generation. That fact, along with important initiatives taken by the Bank of Canada and the private sector, have supported the functioning of the markets," he said.
He said the government needed to be mindful that the economy could be hurt by the Canadian dollar's significant rise, increased competition from emerging giants like China and India, a skilled worker shortage and an aging population, and outdated and inadequate infrastructure.
Flaherty also used the market turmoil to point out the need for a common securities regulator in Canada.
"Recent developments in global capital markets underscore the need for policy and regulatory capacity that can be applied quickly and effectively to address new and emerging issues," he said.
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