Field notes: February 2026
Access to private markets. OSFI's virtuous bankers. Brian Armstrong's crusade to reinvent banking. Build Canada medicine. Detour in anthropocentric accounting.
In the news
1. Financial inclusion for them, but not for us
During the 17th and 18th centuries in London, England, people waited at the post office for letters about merchant voyages across the Atlantic. With letters in hand, they ran from the post office on Lombard Street to the coffeehouses in Exchange Alley, social places that doubled as stock exchanges. People sold shares in a company if its ship had sunk, or bought shares if the ship had arrived to riches. Those who didn’t missed the chance to profit from arbitrage.
Despite any talk of Canadians being underserved by their financial institutions, the financial system has never been more inclusive. It’s no longer necessary to run around the city, collecting letters from people around the world, and then shoving your way past other traders into a rowdy coffeehouse. Today it’s more like: wake up, grab your phone from the bedside table, read the news, open an app, tap the screen a few times, watch lines moves, get up, make coffee, and repeat.
For some, the financial system is trending toward too much inclusion. The Ontario Securities Commission, one of Canada’s many investor protection watchdogs, is proposing to allow retail traders to buy mutual funds holding private assets on a case by case basis. As Clare O’Hara and Jameson Berkow reported:
The initiative is being touted as a way to give ordinary investors access to the burgeoning world of privately owned companies and assets, which are mostly only directly available to institutions and sophisticated, wealthy accredited investors.
Most of the named sources in the story don’t like the proposal because, by their telling, retail investors are fools. More from O’Hara and Berkow:
But investor advocates say private asset investing is riskier and typically more expensive than traditional mutual funds – especially for small investors - and the advocates warn that the plan to create new private asset mutual funds could lead to investors’ money being locked up for years in long-term real estate or infrastructure projects that have extremely complex fee structures.
Sometimes people need to be protected from themselves, like the uncle who thought day trading was the surest way to financial independence. But that people choose to do seemingly stupid things isn’t reason enough to restrict their choices. A stupid choice isn’t always stupid. What’s stupid for one person isn’t always stupid for another. Restricting choice doesn’t always tip the scales of justice how we want. For example, state-mandated financial exclusion can increase inequality if uneven access to investment opportunities allows the rich to get richer faster than the poor.
2. The virtue of Canadian bankers
The Office of the Superintendent of Financial Institutions is like a meddlesome parent. Though it is starting to loosen up, OSFI has strong opinions about whom your friends should be and whom you’re dating, as well as how you should spend your free time. Good for Questrade for becoming a bank, I guess, but it’s hard for me to be full-throated about it.
OSFI is reviewing its so-called “senior leader accountability regime,” which is a good example of how invasive OSFI can be. Being a bank isn’t just meeting capital requirements. Being a bank is meeting all of OSFI’s requirements. To make compliance easier, OSFI maintains a “guidance library” of almost 300 documents, some of which explain how bankers should recruit leaders of “integrity” and “character,” hinting at a definition of “propriety.”
This regime is a formalization of the idea that power must be responsible. Financial institutions can make economies or break them. By supplying entrepreneurs with credit, they can spark an Industrial Revolution. By being imprudent, they can cause the financial system to implode. Laws make a difference because they draw the lines. But within them is where virtue takes over.
I wish there were a standard way to conceptualize and measure the integrity and character of Canada’s bankers.
History suggests that behind the unrelenting profits, behind the fines for being complicit in money laundering, behind incumbents’ grubby rent-seeking, behind the arrogant threats that, rumour has it, were shouted at Paul Martin when he dared to block not one, but two big-bank mergers, there is virtue.
It’s impossible to see unless you pull up the roots of Canadian banking, which were imported from Scotland before Canada was even a country. Here is the writing of Canadian economist Ronald Shearer:
The “Scottish system” of banking is a vaguely defined concept that had an almost mystical attraction for Canadian banking reformers of the period. It was alleged to provide safe, stable banks (in contrast to those of England and the United States) and a stable currency while vigorously promoting economic progress and prosperity.
Until 1845, Scotland had no banking regulators to define and enforce requirements of integrity and character. As economist George Selgin wrote, “Scotland had no central bank, allowed unrestricted competition in the business of note issue, and imposed almost no regulations on its banking firms.”
In relative anarchy, banking doesn’t work without virtuous bankers. The virtue of Scottish bankers was that they had standards they collectively observed and enforced. That virtue made its way to Canada in the early years. As Dan Ciuriak wrote:
…it is ironic to note that one of the seminal factors in Canada’s tradition of stability was that, although banking regulation was initially laid down by the Crown, Canada’s early banks were founded and managed in the Scottish tradition, which featured a high degree of interbank cooperation and employed what one would now term social networks to discipline behaviour. Bankers are strongly averse to instability because of the negative spillovers of such failures on their own banks and on the value of their bank charters. The tradition established in Scotland whereby the largest banks would step into the breach in times of crisis was transferred to Canada with the Bank of Montreal, which also acted as the government’s banker and lender of last resort to troubled banks.
Banks policed banks a long time ago. Canada now is different. Or is it? Have the big banks rotted from the inside out, each unable to think beyond its myopic self-interest? Or is OSFI just codifying what the big banks already do? Bankers know better than most that one rotten institution can spoil the bunch.
3. Banks that aren’t banks
Brian Armstrong, founder and CEO of Coinbase, is on a crusade to reimagine what banking is. Big banks aren’t happy about it. Jamie Dimon, the CEO of JP Morgan Chase, reportedly told him he’s “full of shit” at this year’s World Economic Forum.
At issue is whether stablecoin issuers like Circle — in which Coinbase has a stake — should be able to pay yield, incentivizing people to hold the stablecoins in the first place.
For Armstrong, it’s simple: banks are free to compete for deposits by paying interest on holdings, so why shouldn’t the same freedom be given to stablecoin issuers?
Bankers warn of deposit flight. For banks, deposits are cheap funding. Banks turn deposits from liabilities to assets by lending them out to people buying houses, growing companies, and launching funds that invest whatever is left better than they can. Banks don’t pay a lot for deposits. Stablecoin issuers could, siphoning away a lot of the bank funding for themselves.
For bankers, stablecoin issuers want to act like a bank without being regulated like a bank.
Whether one agrees with Armstrong or the bankers depends on how the ultimate question is posed: what problem is being solved by regulating stablecoin issuers? If it’s promoting competition in banking at all costs, deposit flight is collateral damage in a noble mission. If it’s regulating the financial system so that it can safely over-leverage itself to supply the economy with credit, then regulatory arbitrage by stablecoin issuers is like letting a wolf in the hen house. Stablecoin issuers, after all, hold their reserves in full in cash and cash-like assets. Little (micro) risk, little (macro) reward.
There are many ways to frame the question. Whatever it is, and however policymakers abroad try to answer it, Canadian policymakers would be wise to heed the golden rule of financial-sector policymaking: same activity, same risk, same regulation.
4. Industrial malaise needs medicine and policy
Parts of Canada’s business community love to point the finger. Not up in the air, as if they have a bright idea to share with the rest of us. At the government, pressed against its chest, to emphasize that public policy is why the economy is grim.
A trade association for venture capitalists wrote about why the government isn’t investing enough in Canadian companies (even though the federal government is the biggest VC investor in Canada). An insurer wrote about why if the government doesn’t spend taxpayer money to upgrade infrastructure, parts of Canada will become uninsurable. Most of the government’s AI task force wants the public to foot the bill for Canada’s AI projects.
When ordinary people blame everyone but themselves for their struggles, their sage friends console them before suggesting they focus on what they can control. That’s the constructive way to play a tiny violin. When business leaders blame others for their struggles, they’re put on the news because they express their grievances in terms of industrial policy. Ordinary people need to read a self-help book. Business leaders need to write one for Ottawa.
Industrial policy can pay off, but most Canadian businesses are bad bets. Most are small, unproductive, and likelier to close their doors for good than become a global company like Shopify. The remaining firms that show promise are threatened by the if-only pandemic: if only the government spent more money, if only the government hired people who knew better, if only the government intermingled with businesses more, if only the government wasn’t so politically motivated and had the stomach to really play the lottery that is creating winners among losers.
There is no economic growth without government support — from predictable rules to the subsidization of activity that generates positive externalities. But there also isn’t much economic growth without high-agency, patriotic entrepreneurs, who act as if they don’t need anything from the government to succeed. This is why Build Canada is refreshing. What they say to government — you can just do things — is what they say to themselves.
Detours
1. The moral cost of anthropocentric accounting
In n+1, Alyssa Battistoni explores the concept of the negative externality and hints at the incalculable costs we’re generating as a result of our anthropocentrism. “Pollution has often been described as the ‘price of progress,’ with the implication that it is worth paying,” she wrote. “Those who have actually paid the costs have often disagreed.” And what of all the other forms of life who haven’t been asked?