Canadian bank regulator delays plans to increase capital requirements
Canadian financial regulator is giving the country’s banks more time to adapt to new rules on calculating lending risks, which some have warned could lead to reduced lending.
The Office of the Superintendent of Financial Institutions (OSFI) announced a one-year delay in implementing regulations on “capital floor levels.” These rules would require Canadian banks to use a standardized model to calculate more of the risks in their loan books, instead of relying on internal methods.
The planned changes, set to phase in over several years, are part of the global Basel III accords, designed to limit financial contagion during a crisis. The adjustments address concerns that some banks’ internal assessments don’t adequately capture risk.
While Canada is ahead in implementing many Basel III reforms, the delay on capital floor rules will allow the regulator to consider the implementation pace in the US and other countries, and give Canadian banks more time to organize their books.
Peter Routledge, superintendent of financial institutions, explained to Canadian lawmakers during a parliamentary committee hearing last month that OSFI is consulting with the industry on the “right schedule” for the rising floor. “With respect to the final leg of the changes we’re making, which is known as the ‘standardized floor’ – which is very complex, but is basically a check on the models banks use to allocate capital – we are well ahead of our peers,” he said.
