Tough Rules Gave Canada Banks Advantage, Says OSFI’s Rudin

Tougher regulations imposed on Canada’s financial-services firms helped the country gain a “competitive advantage” following the 2008 financial crisis, Jeremy Rudin said in his first public speech since taking over in June as the country’s top banking regulator.

“In the post-crisis world, our reputation for rigorous regulation has become a competitive advantage for our financial institutions as it helps them be well regarded around the world,” Rudin, who heads the Office of the Superintendent of Financial Institutions, said in prepared text for an event hosted today by the Economic Club of Canada in Toronto. “This pays off for them in better market access for funding, and lower funding costs.”

OSFI has at times chosen to impose rules above international minimums, which put financial firms at “a competitive disadvantage,” Rudin said in a speech titled ‘Getting the Balance Right: Challenges in Maintaining Financial Stability.’ That can be an unintended, but “justifiable” consequence of doing what’s necessary to protect Canada’s financial stability, he said.

Rudin, 58, a former top aide on finance sector issues within the federal government’s finance department, was named Superintendent of OSFI in June for a seven-year term to succeed Julie Dickson on her retirement. Canada’s banking regulator under Dickson made sure the country’s financial-services firms are ahead of schedule in implementing new global standards for regulations including capital ratios and leverage targets.

Biggest Difference

Rudin told reporters after his speech that the biggest difference between him and his predecessor is the global banking environment. Dickson oversaw OSFI through the financial crisis and presided over most of the post-crisis regulatory initiatives “that absolutely defined her mandate,” he said.

“I and my colleagues and people around the world are working very hard so we don’t have another global financial crisis,” Rudin said. “If we don’t, my tenure will seem quite a bit different from Julie’s, but I think it will be mainly from the difference in circumstances.”

During Dickson’s tenure, Canadian banks sidestepped the worst of the financial crisis, recording less than 2.2 percent of the $2.09 trillion of writedowns and credit losses recorded by global financial firms over a three-year period, according to data compiled by Bloomberg. Canada’s financial system has been ranked the world’s soundest for seven straight years by the Geneva-based World Economic Forum.

Unknown Risks

Rudin said he worries about the unknown risks that may become apparent when it’s too late.

“What I worry about, what’s on my list, is is there something that will in retrospect have looked obvious that we’re missing?” Rudin said. “We need to be always asking ourselves whether we are doing a good enough job of collecting the information and assessing the risks.”

Canada will continue to be a “strong supporter” of global standards in financial-sector regulation, Rudin said in his speech.

“When we judge there is little or no value in exceeding an international minimum, we stay quite close to our agreements with global counterparts,” he said.

OSFI created a role of a “small bank adviser”, with Scott Knight taking on the job of consulting with smaller financial firms to reduce regulatory burdens.

“We are well aware of the increase in regulatory burden since the global financial crisis,” Rudin said. “Part of the cost of regulatory compliance is fixed, so it falls more heavily on smaller institutions.”

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