UPDATE 1-Canada to set higher capital requirements for key banks

Thu Mar 21, 2013 5:47pm EDT
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* Budget announcement does not name the banks

* Would affect "domestic systemically important banks"

* Will move on federal law if common regulator idea dies

* Will promote entry of new, smaller banks

By Randall Palmer

OTTAWA, March 21 (Reuters) - Canada's federal budget laid out plans on Thursday to impose higher capital requirements on banks whose failure could disrupt the Canadian financial system and economy.

Finance Minister Jim Flaherty also said the federal government would go ahead with its own capital markets regulatory framework if it cannot agree with the provinces on creating a common securities regulator.

And he said the government would review how it regulates financial institutions to ensure it promotes the entry and growth of smaller financial institutions in order to foster competition that helps consumers and businesses.

The new rules for "domestic systemically important banks" will parallel measures agreed by the Financial Stability Board, the financial watchdog of the Group of 20 leading economies, in response to the 2008 crisis.   Continued...