Canada banking watchdog warns of next global crisis

Sun Mar 27, 2011 2:22pm EDT

* Regulators says has "seen this movie before"

* Banker group says rules alone won't prevent crisis

CALGARY, Alberta, March 27 (Reuters) - Canada's banking watchdog warned on Sunday that that the next global financial crisis may not be far off and that now is the time for regulators to get tough on the financial industry.

"I think we have seen this movie before, but the amazing thing is we continue to expect a different ending," said Ted Price, assistant superintendent of the Office of the Superintendent of Financial Institutions (OSFI), according to the prepared text of a speech in Calgary, Alberta.

The world's banks are now entering a "dangerous" phase from a regulator's point of view, where profits are strong and they are increasingly willing to invest in risky assets that offer high returns, he said.

What comes next is usually a reluctance to stop risky behavior even though returns are diminishing, setting the stage for the next crisis. "I believe we have passed the easy part of the cycle, and it is time for regulators to get tough," he said.

Price's blunt warning came as the global banking group, the Institute of International Finance, is pushing back against efforts by G20 policy makers to impose stricter capital and liquidity standards on banks in hopes of preventing bank failures and bailouts like those seen in the last crisis.

Rick Waugh, IIF vice-chairman and Scotiabank (BNS.TO) chief executive, said it is a mistake to think rules alone can protect against future meltdowns.

"You can have the safest banking system in the world, but you won't have any growth or jobs. You've got to find a balance," he told Reuters.

"We just don't use the hammer when a chisel is more appropriate." (Reporting by Louise Egan; Editing by Marguerita Choy)