Scotiabank warns new global rules could hurt banks

Thu Apr 8, 2010 4:06pm EDT
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TORONTO (Reuters) - Bank of Nova Scotia Chief Executive Rick Waugh said on Thursday new global banking rules could weaken Canadian banks even though they emerged relatively unscathed from the financial crisis.

Warning that Canada could get sucked into unneeded new regulations when global policymakers draft financial industry reforms, the head of Canada's most international bank said it was up to Canadian bankers and policymakers to fight changes that will compromise Canadian competitiveness.

"There is a real danger that Canada will, perhaps inadvertently, be significantly weakened by these reforms," Waugh told shareholders at the bank's annual meeting in Newfoundland.

"Our model has worked well and we should make sure it does not damage us as others try to cover the failures of their own financial sectors. The devil here is in the detail and there are many potential risks and unintended consequences in Basel III," Waugh said.

International decision makers are mulling reforms including higher minimum capital levels and lower leverage limits for banks. World leaders agreed to a sweeping set of reforms in Pittsburgh last September, but final changes are not expected to be approved until the second half of 2010 or later.

The new rules, dubbed Basel III, are expected to be watered down and several countries have expressed concern about their impact. The subject will be in focus when leaders of industrial and emerging market economies meet in Canada in June.

Waugh, who oversaw Scotiabank's U.S. operations after the junk-bond trading scandal that hit many banks with losses in the 1980s, said Canadian banks, not regulators, deserve credit for not getting into the subprime mortgage and derivatives products that sank global competitors.

"No amount of regulation can replace the sound management of principles-based governance or a board and management who are accountable," he said.

Canadian banks took no government bailouts and remained mostly profitable right through the world financial crisis. Robust regulation, good supervision and a conservative culture are all given as reasons for their success.   Continued...