Remarks by Superintendent Julie Dickson (OSFI)
New York, March 16, 2010 – As most will know, Canada’s financial system has held up well during the recent economic crisis, and many people have asked us for our views on why that was.
Some factors that I think played a role in Canada’s performance include robust regulatory rules in the areas of capital and leverage; a regulatory system where all banks, and all of their subsidiaries (including investment banking), are under the scrutiny of a single regulator, OSFI; sound government policies including no tax deductibility of mortgage payments; and our banks generally have recourse to the borrower when loans go bad. Banks themselves also demonstrated that they generally had strong risk management systems.
There may have been other factors as well. For example, some people ask whether our more conservative Canadian personalities played a role, or perhaps whether our constitution was a factor (peace, order and good government versus life, liberty and the pursuit of happiness).
I find it challenging to say with certainty why Canada fared better; to do that you would need to have a lot of information about other systems in addition to Canada’s. However, because the Canadian financial system performed relatively well, Canada can be a bit more reflective about some of the changes that may be required as we take part in international discussions regarding changes to the supervision and regulation of financial services.
In this regard, debates are in full swing, and there has been a flurry of new proposals. Most of the proposals relate to new rules (new capital rules, leverage rules, liquidity rules). Given President Obama’s recent announcement, people are also discussing possible new rules relating to bank involvement in proprietary trading. Other issues being discussed include: systemically important financial institutions, too big to fail, global resolution funds, and contingent capital (a particular favorite of OSFI). There is no shortage of debate on these measures.
Today, however, I want to talk about the need to push the discussion into another area – supervision. Rules (such as minimum capital requirements, leverage ratios, limits on activities) are important, but in the Canadian experience, the actual day-to-day supervisory oversight of financial institutions is just as significant.
To read the complete remarks, go here.
OSFI is an independent agency of the Government of Canada. It reports to the Minister of Finance. For more information visit www.osfi-bsif.gc.ca.