Canadian banks told to meet Basel III early
Wednesday February 02 2011 | 04:30 AM

The Canadian Office of the Superintendent of Financial Institutions has told the country's banks that it expects them to meet Basel III capital rules well before the 2019 requirement.

In a letter on Tuesday to all banks, holding companies and federally regulated trust and loan companies, the OFSI states that they must meet Basel's capital conservation buffer "as soon as reasonably possible".

The letter also pours scorn on risky activities that might threaten a bank's financial position.

Under the Basel III proposals, from 2013 banks worldwide will have to raise their tier 1 capital ratios to 3.5 per cent, progressively increasing to 7 per cent by 2019. This measure is combined with a countercyclical buffer of 2.5 per cent of risk weighted assets.

Canadian banks weathered the financial crisis with relative ease, in part thanks to the regulator's conservative capital requirements, and the move this week is interpreted as an attempt to keep the country's financial services sector ahead of the game.

"Deposit-taking institutions that already meet the minimum ratio requirement during the transition period but remain below the 7 per cent common equity tier 1 target (minimum plus capital conservation buffer) should, with a view to meeting the capital conservation buffer as soon as reasonably possible, maintain prudent earnings retention policies and avoid actions that weaken their capital position," the letter states.

"It is expected that the combination of sound capital management and the international guidance on prudent earnings retention will result in DTIs meeting the 2019 Basel III capital requirements early in the transition period."