Canada regulator pushes back on tougher capital demands
By Matt Scuffham and John Tilak
TORONTO (Reuters) - Canada's financial regulator is pushing back against some of the more onerous demands placed on banks since the 2007-09 financial crisis, rejecting public health checks on lenders and allowing them to operate with lower capital buffers than overseas rivals.
Speaking at the Reuters Financial Regulation Summit, Canada's top banking regulator said the country's biggest lenders, which survived the crisis relatively unscathed and avoided the taxpayer-funded bailouts that rescued U.S. and European banks, may not need to hold as much capital as overseas rivals because their loan books carry less risk.
"It's certainly not out of the question that a capital requirement that would be appropriate in some other country is higher than we think is appropriate in Canada," Jeremy Rudin, Superintendent of Financial Institutions (OSFI), said.
Given its smooth sailing through the crisis, Canada's regulator is likewise not requiring the country's biggest lenders to undertake the stress testing imposed upon U.S. and European institutions.
That is despite concerns over a potential housing crisis in Canada, as Toronto and Vancouver have spiked significantly in recent years, and a sharp increase in funds set aside by banks to cover losses from loans to oil firms.
Canada is reviewing requirements for banks' leverage ratios and will make a decision in 2017 but it is unlikely to make as stringent demands as some overseas regulators, said Rudin, appointed in 2014 to a seven-year term regulating Canada's financial institutions.
Global regulators, keen to make banks safer after the financial crisis, are focusing on the leverage ratio as a way to prevent banks from taking on too much risk and mitigate any attempts to circumvent other capital rules.
The leverage ratio measures the amount of equity a bank holds as a percentage of its loans. Critics say it does not take account of relative risk associated with different types of lending and penalizes lenders, such as Canadian banks, with a high proportion of less risky residential mortgages on their books, many of which are backstopped by the federal government. Continued...