October 27, 2010 / 7:51 PM / in 8 years

UPDATE 1-Stay cautious, regulator urges Canadian banks

* Should be careful on raising dividends, acquisitions

* Doesn’t see any Canadian banks “too big to fail”

* OSFI adding staff to deal with heavier workload

By Cameron French

MONTREAL, Oct 27 (Reuters) - Canadian banks should take a cautious approach to raising dividends and making big acquisitions in a still-uncertain regulatory environment, the country’s banking regulator said on Wednesday.

Speaking in Montreal, Julie Dickson, who heads the Office of the Superintendent of Financial Institutions, also said she doesn’t believe any Canadian banks qualify as being “too big to fail” or “systemically important” on an international basis.

The fact that the question of being systemically important is even being discussed relating to Canada’s banks is a testament to their relatively larger presence in the global market following the financial crisis.

Unlike many U.S. and European lenders, Canada’s banks required no government bailouts, and following a recent loosening of capital limitations some have begun making small acquisitions and talking openly of resuming dividend hikes.

Global regulators are currently working out which institutions are so intertwined with the global financial system that their failure would have a catastrophic ripple effect, such as the collapse of Lehman Brothers in 2008.

Those banks will likely be forced to adopt measures above and beyond other banks — such as holding more capital on the balance sheet, or holding debt that could convert to equity in the event of a crisis — to guard against their collapse.

“I’d say that 80 percent of global financial intermediation goes through 20 institutions ... and no Canadian financial institutions fit that bill,” Dickson told reporters after a lunchtime speech to a Montreal business audience.


Dickson said Canada’s banks should take a conservative approach to resuming big capital outlays, given uncertainty about new global banking regulations and the possibility of more economic or financial headwinds.

“There’s a long list of things they have to consider before they make decisions, such as increasing dividends, she said.

She also warned that banks should not be lulled into a “false sense of security” by new rules that promise to make them stronger by forcing them to hold more capital on their balance sheets.

“I think (the banks) recognize they got through the financial crisis by being prudent and I think they recognize that it makes sense to continue to be prudent,” she said.

OSFI ended a two-year moratorium on big capital outlays in early September following the release of new details on capital rules that are expected to be implemented at the G20 meeting in Seoul in November.

Other pillars of the new regulations, including details on “too big to fail” banks, are not expected until next year.

Dickson also responded to a report released on Tuesday by Canadian Auditor General Sheila Fraser that said OSFI was increasingly “stretched” due to the complexity of its work and may find it increasingly difficult to attract competent staff.

Dickson admitted the regulator’s workload has increased since the credit crisis began in 2007, but said that OSFI — which is funded by the banks it supervises — has been busy adding staff and may continue to do so.

The regulator has increased resources on the supervisory side by 36 percent so far, she said.

“We’re now in the process of determining whether we have to increase resources beyond that (and) our assessment of that is we probably do need more resources.” (Reporting by Cameron French; editing by Rob Wilson)

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