Scotiabank’s Waugh Says Regulators’ Rules Lack Balance

Bank of Nova Scotia Chief Executive Officer Richard Waugh said global regulators’ emphasis on leverage ratios to strengthen the world’s banks doesn’t strike the “right balance” between managing risk and economic growth.

“In an effort to restore confidence in the system, regulation has changed and increased significantly -- especially as it relates to capital and leverage ratios,” Waugh, 65, said in remarks prepared for delivery today in Toronto at an event sponsored by the Empire Club of Canada. “The problem is, capital and leverage ratios only tell part of the story and solve part of the problem.”

The Basel Committee on Banking Supervision and regulators around the world are setting new rules for financial-services firms to prevent a repeat of the 2008 financial crisis, which almost destroyed the global economy. Canadian banks, ranked the soundest for the sixth straight year yesterday by the World Economic Forum, weathered the crisis without bailouts.

An over-reliance on prescribed capital and leverage rules has a direct impact on economic growth, and can have unintended consequences, Waugh said. The focus by officials around the world on leverage ratios, which measure the relation of equity to total assets, is “troubling” because there’s no agreement on the appropriate ratio and it doesn’t measure risk, he said.

“The industry is moving to ensure it makes good decisions on managing the risks,” said Waugh, who’s also a vice chairman of the Washington-based Institute of International Finance. “Regulators must resist adding more capital rules and instead collaborate with the industry on finding the right balance.”

Waugh, who began his career with Scotiabank in Winnipeg, Manitoba, in 1970 as a teller, is retiring as CEO of Canada’s third-largest lender by assets on Oct. 31. He’ll be succeeded by Brian Porter, 55, the Toronto-based bank’s current president.

Waugh led the lender through the financial crisis and added acquisitions in Latin America and Asia while expanding domestically through Canadian takeovers, including the C$3.1 billion ($3 billion) purchase of ING Groep NV’s Canadian business in November. Scotiabank has operations in more than 55 countries including Chile, Mexico and Thailand.

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