Field notes: February 2026

• Global regulators fret about banks’ rising use of credit risk transfers (Financial Times)

• Bank of America commits $25 billion of its own cash to private credit deals (Bloomberg)

• Revitalizing bank mortgage lending, one step with Basel (Federal Reserve)

• Canada’s financial watchdog will fast-track bank licences for fintechs (The Logic)

• Private equity was headed for a correction, even without AI gloom (Wall Street Journal)

• How insurance became the lifeblood of private credit (Financial Times)

If financial regulators were refereeing a game, the game would be the love child of hot potato and a Rube Goldberg machine. Since banking regulators put the clamps on banks after the 2008 financial crisis, non-bank financial institutions (NBFIs) have stepped in to do what banks won’t. NBFIs were active before the crisis, but post-crisis reforms, such as higher capital requirements for banks, gifted them more profit-making opportunities by squeezing banks out of the market. Banks may be more resilient, but what about everyone else?

Risk is just being passed around like a hot potato. Global regulators wanted banks to have resilient balance sheets. Now non-banks are the ones who may be fragile. So-called private credit is “dark money infecting Wall Street,” according to Chris Gray, who wrote it “is creating new channels for transmission of financial contagion.” Even when banks take risks that would make them more fragile, they offload the fragility to non-banks so that they can avoid punitive regulatory treatment. Policymakers haven’t made risk go away. They’ve incentivized another allocation of it.

De-risking is risky business because the financial system is a constantly shapeshifting Rube Goldberg machine. At no point do policymakers know, in the truest sense of the word, how risk will move around, and where their interventions will fall on a risk-benefit curve. When they solve problems, they create other problems to solve down the line, and solutions to those create other problems to solve even further down the line.

When I was too young to form many persistent memories, I enjoyed the board game Mousetrap, which is an example of a Rube Goldberg machine: a contraption that has been over-engineered to deliver a simple effect, a chain reaction of absurd and meandering lengths. I don’t even remember playing the game. I just remember the Rube Goldberg process that ended it. A marble would travel around the game board, whizzing through ducts until it pushed a lever that released another marble. The second marble would fall through a series of holes and then land on a see-saw, catapulting a plastic figurine into a bucket that would unhook a cage, which, finally, would descend on the mouse.

In Mousetrap, the machine is simple enough that no mouse is ever really unsuspecting. They’re on the cheese and the cage is above them. In the financial system, that’s not true. There are cages everywhere. Anyone could find themselves in one, at any time. And the most prudent actions, such as limiting the number of cages in the sky, could increase the chances of falling into cages being laid underground.

• Plan for extended stock trading hours in Canada could be ‘profoundly disruptive,’ TSX warns (Globe and Mail)

Change is the only constant, unless you’re a stock exchange and can do anything about it. To compete with the TMX Group and others for trading volume, CIX Trading Inc. has applied for approval to extend trading hours and offer fractional shares. Its order book would also combine board and odd lots, a back-office distinction that complicates trading. But the TMX Group doesn’t want the Ontario Securities Commission to approve CIX’s plans.

For TMX, such change ought to be managed. While Jeff Foster, who leads CIX, suggested this is self-interest at work, TMX has insisted the public interest is being put first. Across the responses to CIX’s plans, from big-bank brokerages to fintech challengers, directional support is strong. It’s becoming plain that Canadian equity markets need to catch up to their counterparts around the world, such as those in the United States that are gearing up for 24/7 trading.

Here is what TMX included in its letter about CIX’s plans:

The CIX proposal raises fundamental market structure and regulatory policy issues that extend well beyond the scope of an individual marketplace filing, and if implemented as drafted, would significantly impact the stability and integrity of the Canadian capital markets. The proposals by CIX, positioned as steps forward for Canada’s markets, including the introduction of fractional trading and the integration of odd-lots into the Central Limit Order Book (“CLOB”), are not merely “features” of a single marketplace; they represent fundamental changes to the Canadian market structure and the established mechanics of price discovery.

In other words, a bigger and broader conversation needs to happen because change isn’t free to third parties. Over my life, the words I’ve read to describe change have never struck me as peaceful and orderly. There are revolutions. Literal ones are violent. Figurative ones are violent in economic terms. Creative destruction is what happens when new innovations make old ones obsolete. There is an explosion of new businesses. Managing change is a good way to reduce negative externalities, but there are times when the solution to a problem becomes a problem itself.

The most dangerous thing about change is its inevitability. Right now, public markets are in decline. In How Progress Ends, Carl Benedikt Frey argued that decentralized approaches to governance give innovators the freedom to push the technological frontier out, while centralized approaches encourage adoption of frontier tech so that laggards can catch up. There is a lesson here for securities regulators, which have been quick to crack the whip before: managed change doesn’t have to be slow and deliberative.

• Bloc Québécois proposes banks be held liable for customer fraud losses (Globe and Mail)

• Liberals agree to Conservative budget bill amendments (Globe and Mail)

Fraud is a big problem, and it’s likely going to get bigger. It’s already the most common banking complaint the Ombudsman for Banking Services and Investment has to deal with. The costs are also staggering. Over $600 million in fraud was reported to Canada’s Anti-Fraud Centre in 2024. According to the CAFC, the figure is likely underreported and the true number may be upward of $6 billion. As more and more money is able to move in real-time, scammers will have more ways to abscond with stolen money faster than victims can catch on to what is happening.

A proposal from the Bloc Québécois would have made banks liable for fraud, but Liberals and Conservatives voted it down. If banks had seats on the House of Commons finance committee, they’d have voted it down, too. The Canadian Bankers Association chose to “strongly recommend the government use the National Anti-Fraud Strategy under development to support and invest in preventative, cross‑sector measures to help Canadians address this global challenge and help keep Canadians safe.” This strategy includes:

• New legislative amendments “requiring banks to have policies to prevent and address fraud, while giving consumers more control over their bank accounts.”

• A new financial crimes agency “to lead Canada’s efforts in combatting sophisticated financial crimes.”

• Leading work with “stakeholders and banks to develop a voluntary Code of Conduct for the Prevention of Economic Abuse.”

The most telling bit of this strategy, which so far tells little, is that it will “build upon existing industry-led initiatives to combat fraud and scams, such as the Canadian Anti-Scam Coalition.” The Canadian Anti-Scam Coalition is the child of the Canadian Bankers Association. If I were a cynic, I’d tell you that this coalition came together because banks saw the future when they looked across the pond. The United Kingdom has required banks and payment service providers to reimburse their customers in the event of fraud. The UK’s payment system regulator reported the policy is having its intended effects so far, with an independent review forthcoming.

It strikes me as correct — bordering on irrefutable — to make banks and payment service providers liable for fraud when the victim isn’t to blame, such as when a shady merchant steals their credit card credentials, or when a criminal in another country has hacked their bank account and wired or e-Transferred a bunch of money out of it. Both the Bank Act and Retail Payment Activities Act should be amended to that effect.

But when people have been duped into victimizing themselves, it’s trickier. As uncomfortable as it can be to say, some problems can only be solved by protecting people from themselves, depriving them of a responsibility they can’t exercise. The question, then, is who is most likely to make that choice in the best way? One answer is that it’s banks and payment service providers. They’re already incentivized to let their customers move money. What they’re not really incentivized to do is to protect people who want to move money from themselves. Regulators don’t let financial advisors push just anything on everyone. So why should everyone have the ability to send away their life savings, irretrievably, with the click of a button? Bearing liability is one way to incentivize banks and payment service providers to strike better balances between reckless empowerment and oppressive paternalism.

• Stablecoins vs. tokenized deposits: the narrow banking debate revisited (Federal Reserve Bank of New York)

Xuesong Huang and Todd Keister from the New York Federal Reserve have tried to imagine the worlds where restricting the issuance of stablecoins would be welfare-reducing. As it happens, there are a lot of them.

The headline finding is that whether restricting the issuance of stablecoins makes sense depends on the quality of banking laws and regulations. If moral hazard is strong and supervision is lacking, stablecoins are welfare-enhancing. If the inverse, the opposite is closer to the truth, and the case for restricting stablecoins is stronger. In between the two extremes, competition between stablecoins and tokenized deposits is welfare-enhancing when the availability of stablecoins can discipline banks.

Theoretical work like this clarifies thinking, but it struggles to settle open questions, such as whether policymakers should let stablecoin issuers pay yield to capture some of the funding that would otherwise go to banks. Theory doesn’t tell us which world we’re actually in. It’s possible that Canada is living in that extreme world where moral hazard doesn’t dominate. It’s also possible that the United States is living in a world where moral hazard does. Does it follow that U.S. policymakers should let issuers pay yield and that Canadian policymakers shouldn’t?

Work like this only paints a partial picture. The aforementioned researchers looked at trade-offs between stablecoins and deposits only in tokenized transactions. Other researchers, such as Canadian economist Stephen Williamson, have tried to assess the trade-offs across the whole economy, leading to a more pessimistic conclusion: “narrow banking depends on inefficient regulation in conventional banking, and narrow banking is never welfare-improving.”

At this point, whether it makes sense to restrict stablecoins really depends on whom you ask, and which imaginary world they like to spend the most time in.

• Meet your greens (Works in Progress)

This essay sheds light on how humanity turned wild cabbage into a wide range of plants, with different shapes and sizes, such as kale, broccoli, purple cabbage, cauliflower, kohlrabi, Gai lan, and others like it. Alex Wakeman suggests the evolution of brassica is unlike that of other crops, which have followed a pattern of people selecting “for bigger grains, juicier fruit, more branches, or shorter stems – gradually turning wild plants into improved yet recognizable versions of their originals.” Wild cabbage hardly looks like its distant heirs.

• How to win the Westminster dog show (Maclean’s)

Theresa Connors-Chan reflects on what it took for Penny, her Doberman, to win the most prestigious dog show in the world. “Prepping for that is nothing like teaching a regular pet to sit or walk on a leash—it’s more like Olympic training for canines,” she wrote. “A show dog has to stand perfectly square, hold their neck and head in a natural, beautiful line, and maintain that composure even when a judge is running hands all over their body.” To get there, Penny had to live away from home, full-time, to train for the big event.