Canada’s bank regulator pushes for faster adoption of Basel III rules

Bloomberg

Canada’s financial watchdog plans to revise capital requirements for the nation’s banks, drafting more risk-sensitive interim rules while moving faster towards adopting new criteria set by global regulators.
The Office of the Superintendent of Financial Institutions’ Carolyn Rogers announced the changes during a speech at a conference hosted by RBC Capital Markets in Toronto.
She said Canadian banks would have until the fourth quarter to conform to an inte-rim risk model that transiti-
ons toward capital standards announced in December by
the Basel Committee on Banking Supervision.
“We are strong advocates of the value of international standards in Canada but we have also never shied away from deviating from those standards where it makes sense in our domestic market,” said Rogers, the OSFI’s assistant superintendent. “In some cases those deviations result in higher standards or tighter transition timelines.”
Rogers said she expects a faster transition to Basel III rules that restrict how low banks can drive their capital requirements by gauging asset risk with their own statistical models. In Canada, banks’ total assets weighted for risk using their own models can’t be less than 75 percent of the amount calculated with a formula provided by the regulators, under the interim Basel II plan announced by Rogers. That interim plan comes into effect over this fiscal year.
“With a new output floor in place that we expect to bridge us to the Basel III floor, our focus will be on mapping the rest of the transition plan to bring the final set of Basel III reforms into Canada,” Rogers said.
Under Basel III, which uses a different formula, the so-called output floor starts at 50 percent in 2022 and phases in to the final level of 72.5 percent over five years. The 10-year timeline is “unnecessarily long,” and delaying the start and stretching out implementation doesn’t send as clear message of safety and soundness, Rogers said.