Canadian bank chief executives will discuss new regulatory hurdles and risks to the global economy at a meeting with Bank of Canada Governor Mark Carney and banking watchdog Julie Dickson next week, according to a person familiar with the meeting.
Carney will speak to executives on global economic issues and household debt while Dickson, who heads the Office of the Superintendent of Financial Institutions, will focus on risk management issues such as new capital requirements, the person said on condition they not be identified because the Nov. 26 discussions at the central bank’s Toronto office will be private. Carney and Dickson, who typically meet bank CEOs twice a year, will brief the executives on new regulatory initiatives, the person said.
The meeting comes as growth in lending slows amid mounting regulatory requirements and as risks to Canada’s economy escalate because of record debt levels. Moody’s Investors Service placed six Canadian lenders, including Bank of Nova Scotia and Toronto-Dominion Bank, on review for possible downgrade last month. Canada’s banks are scheduled to release fourth-quarter earnings beginning next week.
“The government is taking a much more activist stance against the banks that have to date shown they’re quite prudent on consumer lending,” said John Aiken, an analyst at Barclays Capital in Toronto.
Housing and household debt, and the industry’s capacity to overcome shocks, are expected to be a focus for Carney, who will also provide an overview of the global economic outlook and its impact for banks.
Bank of Canada spokesman Jeremy Harrison said the bank does not comment on Carney’s private meetings. OSFI spokesman Rod Giles said Dickson normally meets bank executives twice a year to exchange information.
“High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable,” Moody’s said in its report.
Carney last month told Canadian lawmakers that record household debt burdens are the main domestic risk to the economic expansion.
Canada’s economy is also being restrained by an inconsistent global recovery with risks posed by Europe’s debt crisis and the prospect of automatic tax increases and spending cuts in the U.S. next year. In his most recent public statements, Carney has warned that doubts over policy makers’ ability to resolve global economic issues has begun to curb global business investment.
“There is a relatively high degree of uncertainty about the stance of economic policy across many major jurisdictions,” Carney said in a Senate committee hearing Oct. 31. “The net effect of this is causing business investment to be less robust. You see this most directly in the European Union.”
Dickson and Carney, who also chairs the Financial Stability Board group of global regulators and central bankers, are expected to discuss new regulatory initiatives such as additional capital requirements for domestic institutions deemed systemically important, the person said.
Barclays Capital’s Aiken said he expects the banks will be looking for clarity on how domestic systemically important banks will be classified, and looking for assurance that there won’t be any structural changes to personal lending practices.
Finance Minister Jim Flaherty has tightened mortgage lending rules four times to stop the country’s home market from overheating, and Dickson has issued draft guidelines on mortgage underwriting to banks.
“If we do have an actual slowdown in mortgage lending, there’s only so many more avenues that the banks can use to sustain lending growth,” Aiken said.
Countries face a Jan. 1 deadline for starting to apply so-called Basel III rules, which were drawn up by global regulators to prevent any repeat of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. OSFI assistant superintendent Mark Zelmer said yesterday that Canadian banks should meet Basel III capital requirements by the end of this year.
While countries are allowed to phase in the new requirements until 2019, Zelmer said Canadian banks “are strong enough that they do not need most of the phase-in requirements.”
Canada’s financial industry is also preparing for an assessment next year by the International Monetary Fund on the stability of the system, and this is expected to be discussed at the meeting, the person said.