Newspaper article The Canadian Press

OSFI, Bank of Canada Act to Make Financial System Safer, Lessen System Risk

Newspaper article The Canadian Press

OSFI, Bank of Canada Act to Make Financial System Safer, Lessen System Risk

Article excerpt

Canadian regulators act on financial system


OTTAWA - The federal financial supervisor has slapped a too-big-to-fail label on Canada's six largest banks, declaring they will need to carry a bigger capital buffer and be subjected to stricter supervision than their smaller peers.

The Office of the Superintendent of Financial Institutions said Tuesday that the "systemically important" designation stems from a framework issued by the Basel committee on banking oversight in October that set out guidelines for assessing domestic financial institutions.

Coincidentally, the Bank of Canada announced it would regulate SwapClear, the dominant global system for centrally clearing over-the-counter interest rate swaps operated from the United Kingdom.

The central bank said SwapClear has the potential to pose systemic risk to the Canadian financial system, adding the new designation would make the system "safer and more resilient."

Under the new OSFI requirement, the Bank of Montreal (TSX:BMO), Bank of Nova Scotia (TSX:BNS), Canadian Imperial Bank of Commerce (TSX:CM), National Bank of Canada (TSX:NA), Royal Bank of Canada (TSX:RY) and Toronto-Dominion Bank (TSX:TD) will be required to have to a bigger risk buffer than other banks.

Their Tier 1 capital ratio will have to be at least eight per cent as of Jan. 1, 2016, as compared with seven per cent for less important financial institutions.

The OSFI changes are also designed to make Canada's leading banks more bullet proof in the event of a financial crisis.

"The measures ... are designed to limit the likelihood that a major bank would encounter distress or failure that could negatively impact the Canadian economy or taxpayers," OSFI head Julie Dickson said in a news release.

Economics professor Ian Lee of the Sprott School of Business said the change was not a surprise given the dominance of the big banks, but that Canadians should not be concerned about the banking sector.

"I really do believe they are the most solid, secure, safest banks in the world and the World Economic Forum has said so five years in a row, so it's not just me saying that," he added.

"We also have a very diligent regulator, unlike the Europeans. …

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