Bank regulator urges caution on world rules

Thu Oct 1, 2009 2:32pm EDT
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OTTAWA (Reuters) - Canada's top banking supervisor, Superintendent of Financial Institutions Julie Dickson, cautioned on Thursday against international regulators rushing into financial industry reform that might end up backfiring.

While Dickson said she approved of changes drawn up by the Financial Stability Board set up by the Group of 20 industrialized nations, she said international decision-makers must exercise caution in correcting mistakes that led to the financial crisis.

"I know there's a view that you have to take advantage of a crisis because often a crisis is what you need to get anything done, and I appreciate that view," she said in response to a question from the audience after a speech to insurance industry representatives.

"But there's a high risk of making a mistake, so I think we would be well served to slow down a little bit."

Canadian banks have emerged from the financial crisis in good shape relative to global peers, having accepted no bailouts and remaining mostly profitable throughout. Their capital levels are high, and their success has been chalked up to both the Canadian regulatory system and the banks' inherent conservatism.

While global policymakers are considering designating some financial institutions as systemically important -- so big that their failure could hurt the economy -- Dickson told Reuters after her speech that that could have unintended consequences, without elaborating on what those consequences might be.

"So we are urging that we discuss that a lot more before we land on it," she said.

A report will be presented to G20 finance ministers next month on how to determine if a financial institution is vital to the financial system. Regulators will also assess the need for a capital surcharge on banks that are designated vital.

Dickson said there was broad agreement that impact studies need to be carried out to determine if new regulations on liquidity and capital have harmful consequences.   Continued...

<p>People walk past a Royal Bank of Canada branch in Ottawa August 27, 2009. REUTERS/Chris Wattie</p>