August 31, 2012 / 5:58 PM / 6 years ago

National Bank "systemically important" to Canada, CEO says

TORONTO (Reuters) - National Bank Financial (NA.TO) Chief Executive Louis Vachon said on Friday he believes the bank will be designated “systemically important” to Canada’s banking industry, and thus may face stricter capital retention rules.

Global regulators are imposing stricter rules on the banking industry to avoid a repeat of the 2008 financial crisis. These include a tougher set of standards for banks designated systemically important, or “too big to fail”, meaning their collapse would imperil the broader industry.

While regulators have so far focused on banks considered systemically important for the global industry, they are now turning their sights to lenders considered key to national industries.

Canada’s banking sector is dominated by five big banks, all of which are expected to be designated systemically important domestically.

But Vachon said he expects National, Canada’s No. 6 bank and less than half the size of any of its larger rivals, also will be included on the list.

“Our view, and again that is our view... is that we are likely to be included as a domestic SIFI (systemically important financial institution),” he said on a conference call to discuss the bank’s third-quarter results.

Although the criteria for deciding which banks will be targeted and what standards they will face will not be released until next year, it is expected banks labeled as SIFIs will be forced to carry a level of capital above and beyond the stricter standards currently being phased in for other banks.

Retaining more capital leaves less for banks to use to expand their businesses or pay back to shareholders as dividends or buybacks.

Vachon said National would not be doing large share buybacks until it has a clearer view of what standards will be put in place.

National has about C$176 billion ($178.5 billion) in assets, according to Reuters data, far less than Canada’s largest lender, Royal Bank of Canada (RY.TO), which has C$824 billion in assets, and less than half of No. 5 bank Canadian Imperial Bank of Commerce’s (CM.TO) C$387 billion.

Robert Sedran, an analyst at CIBC World Markets, said naming National Bank a SIFI makes sense from the standpoint of maintaining a level playing field among the Canadian banks.

“The question almost becomes more of a competitive environment one... (and) I think OSFI would be disinclined to treat anyone differently,” he said.

Canada’s Office of the Superintendent of Financial Institutions is the country’s bank regulator, and will be responsible for implementing the new regulations.

Canada’s other big banks are Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO) and Bank of Montreal (BMO.TO)

($1=$0.99 Canadian)

Reporting By Cameron French; Editing by Peter Galloway

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