Canada ups financial oversight, tags "too big to fail" banks

Tue Mar 26, 2013 3:05pm EDT
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By Cameron French

TORONTO (Reuters) - Canadian authorities on Tuesday designated the country's top six banks as "systemically important" to the domestic economy and increased oversight of a widely used global derivatives clearing system in an effort to reduce banking system risk.

The so-called too big to fail designation was widely expected by the market and means the six banks will have to keep more capital on hand than required by the Basel Committee on Banking Supervision after the 2008 financial crisis.

The banks, named soundest in the world for five years running by the World Economic Forum, are already in compliance with Basel III capital requirements. All but one meet the new tougher rules. Neither the United States nor the European Union have formally implemented the Basel standards yet.

"The measures we are announcing today are designed to limit the likelihood that a major bank would encounter distress or failure that could negatively impact the Canadian economy or taxpayers," Julie Dickson, head of the Office of the Superintendent of Financial Institutions (OSFI), said in a statement.

The changes are in line with the focus that the Group of 20 rich and developing nations is putting on banks that play significant roles in their home countries. The G20 has already imposed additional capital requirements on banks deemed globally systemically important.

No Canadian bank is considered systemically important globally, but OSFI said the concentrated nature of Canada's banking industry - the top six banks control more than 90 percent of the assets - meant the top players all required an additional capital buffer.

Canada's top six lenders in order of size are: Royal Bank of Canada (RY.TO: Quote), Toronto-Dominion Bank (TD.TO: Quote), Bank of Nova Scotia (BNS.TO: Quote), Bank of Montreal (BMO.TO: Quote), Canadian Imperial Bank of Commerce (CM.TO: Quote), and National Bank of Canada NA.TO.

All six will be required to hold a minimum Tier 1 capital ratio of 8 percent as of January 1, 2016. As of the end of this past January, all but National Bank were already above that level, and National was just shy at 7.9 percent.   Continued...