OSFI has published a speech by Assistant Superintendent Mark White of OSFI to the RBC Capital Markets Central Bank Conference.
The most delicious part is:
Looking forward, effective prudential regimes will be characterized by regulators with focus, effective tools and accountability.
Successful regulators will not relax rules to win business from other jurisdictions – or to promote the business objectives of their domestic institutions if they are not consistent with prudential regulatory objectives. Successful regimes will not expect prudential regulators to forego prudential objectives to achieve non-prudential goals. Instead, banks and investors will seek regulation that is focused, transparent, consistent and fair – as these factors will be hallmarks of a strong and reliable financial system.
OSFI’s lack of transparency has aroused my ire in the past: in that paper I made particular note of the totally inconsistent, completely opaque nature of the change in the rules when MFC got into trouble.
One reason why the Canadian financial sector has been relatively untroubled is because whenever an institution got into trouble, the rules were changed to let them off the hook. The change with MFC was not isolated: when it became apparent that OSFI’s incompetent testing of the effect of Basel 2 had created unexpected effects in the Assets-to-Capital Multiple they changed the rules.
Mr. White also predicted increased international use of capital ratios, presumably without knowledge of the BIS Press Release making that promise a few weeks ago.
As has become normal, Mr. White praised the high capital levels of Canadian banks without making the slightest effort whatsoever to perform a through-the-cycle (including this cycle!) cost/benefit analysis. Maybe the higher capital ratios are, all in all, good; maybe the higher capital ratios are, all in all, bad; I don’t know and neither, it would seem, does Mr. White.
Update, 2009-9-19: For an outsider’s view of the recent past, see Why Have Canadian Banks Been More Resilient?. It is claimed that the critical element is funding; Canadian banks get a huge amount of their funding from low-cost, very stable deposits.
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