Bank regulator prepared to go it alone

CANADA IS PREPARING TO MOVE AHEAD ON ITS OWN, WITH A CANADA-SPECIFIC PLAN.

TORONTO • Canada’s banking regulator is prepared to move ahead with new rules to ensure the country’s bank’s have sufficient capital buffers for bad times — even if the mired international efforts of the Basel Committee remain stalled indefinitely.

“We would not stand still,” Jeremy Rudin, head of Canada’s Office of the Superintendent of Financial Institutions, said in prepared remarks for a presentation to the C.D. Howe Institute on Thursday. “Canada is preparing to move ahead on its own, with a Canada-specific plan for improving our capital regime.”

He said the domestic regulator would address the outstanding issues of an overhaul spearheaded by the international Basel Committee on Banking Supervision in the wake of the financial crisis in 2008. The global effort to standardize and incorporate the risk weighting given to specific assets when formulating how much capital a bank must hold stalled late last year, reportedly due to differences between Europeans banks and those in the United States.

OSFI would roll out its plan “with an eye to addressing the inappropriate incentives that arise when assets that pose very different risks are given the same risk weight,” Rudin said, adding that the regulator would also examine variations in risk weights across Canadian banks that use their own internal rating system.

“We would want to make sure that the problem of unwarranted variation in risk weights that we see internationally does not take root in Canada,” he said.

OSFI’s “strong preference” is for the international committee to get back to work and reach an agreement that all member jurisdictions can support and implement, Rudin said.

“At the same time, Canada is preparing to move ahead on its own, with a Canada-specific plan for improving our capital regime,” he said, noting that moving ahead alone would not give regulators a completely free hand.

Still, Rudin said he is prepared to impose higher standards on Canadian banks than the minimums when it is necessary to bolster safety and soundness.

“We have done this in the past, we are doing it to some extent in the present, and we are prepared to do so in the future. But these departures from a level playing field need to meet a stringent test,” he said.