* OSFI head urges "continued conservatism" on capital
* Economy, rule changes suggest moderate approach
* Canadian banks in good position if rules change
(Adds comment on supervision, global rules)
By Andrea Hopkins
TORONTO, Nov 18 Canada's top banking supervisor
said on Wednesday the country's top lenders should continue to
take a conservative approach to capital levels before
contemplating any share buybacks.
Julie Dickson said Canada's big banks have long been
required to get approval from her department, the Office of the
Superintendent of Financial Institutions (OSFI), before a share
buyback. And, she says, she has continued to urge them to keep
in mind that capital levels may be changing under global
"I think that, in the environment in which we are living
right now, institutions are aware that capital requirements are
being discussed internationally and there are going to be some
changes," Dickson told reporters in response to a question
about whether share buybacks were on the table at the banks.
"As well, the environment is still a bit uncertain and we
all know that loan losses lag the economy. So these are all
things we've put in front of institutions and that suggests
continued conservatism in that regard," Dickson said.
Dickson spoke to reporters after giving a speech to capital
market players in Toronto.
Canada's big five banks are among the best capitalized in
the world and built capital levels through the financial crisis
by issuing shares or debt earlier this year.
With the crisis easing, speculation has risen that banks
may soon increase their dividends, repurchase shares or deploy
capital through acquisitions in a bid to put that capital to
work or return it to shareholders.
Dickson also told reporters that Canadian banks were in a
solid position as global regulators discussed amending capital
or leverage rules, since they entered the crisis with strong
balance sheets and a cautious approach to capital levels.
"I do think because Canadian banks started from a very
solid position, they will have less far to go than some other
banks. But I also think there are a lot of things on the table
right now and it's too early to say where we'll end up."
None of the five big banks -- Royal Bank of Canada (RY.TO),
Toronto Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO),
Bank of Montreal (BMO.TO) and Canadian Imperial Bank of
Commerce (CM.TO) -- have begun to decrease their Tier I capital
levels, which are all well above the regulator's minimum target
of 7 percent.
Dickson said Canada was taking a leading role in global
discussions about optimal capital and leverage ratios because
its banks are seen as a success story, emerging from the crisis
untouched by bankruptcies or bailouts.
"Our capital rules are seen to have been good going into
the crisis, so people are very interested in our target levels
of 7 and 10 percent -- 7 percent Tier 1, 10 percent total,"
"People are very interested in the way we approached
quality of capital going into this crisis, with a guideline
that 75 percent of Tier I had to be common shares. So those
are all things I see other regulators gravitating toward."
Dickson reiterated her concern with some of the regulatory
proposals being put forward in international discussions,
including the suggestion that some banks be declared
systemically important -- so big that their failure could hurt
the economy -- and then charged a capital surtax.
But she declined to say whether Canada would "opt out" of
any rules it disagrees with, saying it was too early to
conclude what form the final regulations would take.
In her speech, Dickson urged improvements to supervision by
regulators, rather than more rules or an incursion by
regulators into matters that have traditionally been considered
the responsibility of management.
"We do a lot now, but we don't think we're crossing the
line into management," Dickson said, contrasting Canada's
approach to that in Britain, where regulators have become
involved in the hiring decisions of senior bank personnel.
(Reporting by Andrea Hopkins; editing by Rob Wilson)