Tighter capital rules could leave Canadian banks uncompetitive, RBC's McKay warns
Canadian regulators should rethink capital requirements imposed on the country’s largest financial institutions if banks in the United States and Europe are not forced to follow through with the strict final stages of the international risk management regime put in place following the 2008 financial crisis, the head of Canada’s largest bank says.
“We cannot get out of sync with our two major competitive markets, Europe and America,” Royal Bank of Canada chief executive Dave McKay said in an interview this week. “A level playing field is really important.”
United States Federal Reserve chairman Jerome Powell signalled an about-face on a plan to raise large bank capital requirements when he spoke before the U.S. Congress on March 6, saying significant changes would be made to the “Basel III endgame” proposal, which encompasses an internationally agreed set of measures created in the wake of the 2008 financial crisis and includes minimum capital requirements to guard against market risk. His surprise statement followed pushback from banks in the U.S., which lobbied to avoid the final, most stringent stage of the protocol, arguing it would hurteveryday Americans by potentially reducing the amount of money banks had available to lend.
Canada’s Office of the Superintendent of Financial Institutions, meanwhile, has updated its bank rules to reflect the final package of Basel III reforms and put them into effect for Canada’s banks in 2023.
“We’ve gotten out front on Basel III, expecting those markets to follow,” said McKay, whose bank has significant operations in the United States. “If anything changes, we have to rethink that trajectory.”
Canadian banks would no longer be competitive if Canadian and international regulators
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