Canadian bank regulators expect to announce which of the Canadian banks will be designated as systemically important in the next few months — an honour that will carry added capital requirements.
Speaking at an industry conference Tuesday, Mark Zelmer, assistant superintendent at the Office of the Superintendent of Financial Institutions (OSFI), announced that some banks will be designated as domestically systemically-important (D-SIBs). “We expect to announce our decision within a few months,” he said.
Zelmer said that banks designated as a D-SIB can expect to face additional prudential requirements, including having to carry more common equity, and he noted that the extra capital requirements will take effect in January 2016, which should provide “plenty of time for the designated banks to plan accordingly.”
As it stands, the Canadian banks are already reporting “gold-plated” capital ratios, he noted, as they have adopted the new Basel III capital requirements without requiring the six-year transition period that some other countries are allowing, and with strict adherence to the definitions required by the new rules.
Looking ahead, Zelmer noted that the Basel Committee recently approved a new liquidity standard, and that its operation will be refined in the year ahead; as will another liquidity measure to be implemented under Basel III. And, he said, OSFI needs to consider how “our existing liquidity monitoring tools should be used in conjunction with these new international standards.”
And, he said that the banks are currently reviewing recommendations released late last year for enhanced disclosure. “Our goal at OSFI is to ensure that major Canadian banks continue to be among the best in terms of information disclosure,” he said, adding, “Our hope is that more information on the models used by banks to calculate their risk exposures and asset risk weights will increase investor confidence in those models and in the Basel III capital framework more generally.”
Finally, Zelmer suggested that efforts by regulators in other countries indicate that “we may be moving to a world where more attention will be placed on how capital and liquidity are allocated within a banking group.”And so, it will be considering “what kind of framework and expectations would make sense in the future for federally-regulated financial institutions here in Canada.”