Dodd-Frank Hampers Canada’s Too-Big-To-Fail Rules, Schembri Says

The U.S. Dodd-Frank legislation may interfere with Canada’s effort to create so-called living wills for the country’s biggest lenders, Bank of Canada Deputy Governor Larry Schembri said.

Major Canadian banks may fall under a Dodd-Frank requirement for their U.S. subsidiaries to hold capital in that country, Schembri said in a speech he’s giving today in Windsor, Ontario. That raises questions about how a failed Canadian bank would settle its claims under new global rules aimed at ending so-called too-big-to-fail banks, he said.

“Canadian banks have long been active and well trusted in the U.S.,” he said. Such rules “run counter to the spirit of the G-20 reforms to promote financial integration,” he said. His remarks didn’t provide an outlook for the Canadian economy or the bank’s 0.75 percent benchmark interest rate.

The risks of having competing sets of rules is one of the challenges in creating lasting reform, since the Group of 20 nations began looking at ways to avoid a repeat of the 2008 financial crisis, Schembri said. Canada and the U.S. could ease frictions by striking a bilateral deal that emulates the free trade agreement created in 1988, he said.

Another area that needs work is common rules for the over-the-counter derivatives market, Schembri said. Again, the Dodd-Frank law creates an obstacle with a provision that “effectively precludes” the Bank of Canada and even the U.S. Federal Reserve from using trading data, he said.

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