The Canadian Press

TD Bank (TSX:TD) chief executive Ed Clark says the financial institution will look at the possibility of acquisitions in the southeast of the United States over the next few months.

But Clark said the targets will be smaller banks with assets of less than $10 billion.

“We’re really right now not anxious to do anything bigger than that until we get a little more clarity about where the U.S. economy is going,” Clark told a news conference after the bank’s annual meeting in Quebec City on Thursday.

Clark said TD Bank will look primarily toward the southern United States on the east coast for its expansion.

TD Bank already has a major presence in the northeastern U.S. states, primarily in New England and New York state through its purchase a few years ago of Banknorth Group, a U.S. retail bank

The U.S. southeastern states are in an area that has been hit hard by the sub-prime mortgage crisis and collapse in the housing industry, squeezing the financial industry and producing large losses for banks and other mortgage lenders.

The TD chief executive noted that many of his bank’s competitors are also interested in taking advantage of bargains in the south and the U.S. northwest. Royal Bank of Canada (TSX:RY), Canada’s largest bank, is a growing player in the Carolinas, Georgia and Florida, where is owns the former Centura Bank.

TD also owns about 40 per cent of TD Ameritrade, a discount brokerage based in the United States midwest.

Clark also addressed the issue of a national securities regulator — a body that Quebec wants nothing to do with.

While not wanting to get too involved in the political debate, Clark said it is difficult to attract international capital with 10 different provincial authorities.

“I’m not gonna get into what the right model is,” he said.

“But I think everybody in the banking business recognizes that going to the world and saying: `We have 10 regulators and the lowest common denominator wins, that’s how we regulate Canada,’ it’s not gonna be an acceptable answer.”

Clark also said some of the global rules being proposed by regulators could actually have a negative impact on the banking system.

He told investors at the annual meeting that one rule would require banks to put up the same amount of capital for both high-risk and low-risk assets.

He said that such a regulatory requirement would likely push Canadian banks to invest in more high-risk assets than they have because of the bigger potential returns compared with lower-risk holdings, such as mortgages. He said the shift could increase the risk of another catastrophic financial downturn.

“Under the proposed rules, holding low-risk mortgages would not generate sufficient returns on the capital required,” he said. “As such, banks would be forced to adopt higher risk strategies.

“That, in turn, could make the financial system less stable — the exact opposite of what reforms are meant to achieve.”

Canadian banks have been widely praised for their relatively cautious approach to risk, which helped them and the country as a whole weather the recent global crisis that was sparked in late 2008 by a collapse of the U.S. financial sector.

Clark said global regulators should focus on fixing rules that allow security deals to be overleveraged and undercapitalized, and insisted that the U.S. focus on making changes to its “dysfunctional” mortgage system.

He also suggested that regulators consider adopting Canada’s rules on capital, which he said allowed the domestic banking industry to “withstand a very severe test.”

However, he also cautioned that regulators should not try to make sweeping changes in the short term despite calls to move faster in adopting new rules.

“The risk here, in my view, is that we try to do too many things at the same time, in the end we achieve nothing,” Clark said.

“The key is to focus more of our efforts on fixing the core issues: excess leverage in the trading books as well as the quality and level of capital.”

Also at TD’s annual meeting, about 97 per cent of shareholders approved the bank’s 2010 approach to executive compensation in a non-binding “say on pay” proposal.

TD shares rose 48 cents to close at $76.50 on the TSX.