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Canadian Banks Looking to Maintain Their Current Leadership Position by Expanding International Market Share Will Have to Contend with Financial Regulatory Reforms

Contact
Diana Butler Buxton, (212) 284-8728; diana.buxton@capco.com

As the Group of Twenty (G-20) Finance Ministers and Central Bank Governors plan to meet here this month, Canada’s banks will likely face several unintended consequences from regulatory reform measures being considered as they take steps to increase their global competitive footprint, according to Capco, a leading global provider of consulting and managed services to the financial services industry.

“Canadian banks cannot sit idle or they will be marginalized,” said Ido Gileadi, Partner and Canadian Region Leader, Capco. “In order to maintain their position internationally, Canadian banks must acquire or enter new markets in the United States and globally. However, doing so will subject them to a different regulatory landscape than they currently operate under in Canada – this will have a significant impact they must be prepared to deal with.”

According to Capco subject matter experts Nick Jackson (Banking), Robert Benedetto (Finance, Risk & Compliance) and Carmina Venditti (Wealth & Investment Management), there are several financial reform issues on the table that Canadian banks need to be prepared to address:

Capital Requirements

  • Could regulating bank capital and leverage limits exclusively hamper Canadian banks’ ability to compete globally?
  • Canadian politicians have challenged the global banking tax. Should other countries consider capital rules that allow banks to hold crisis funding in the event of distress?

Tax Issues

  • Should regulators force banks to set aside capital reserves through a banking tax to be used for bailouts?
  • What does rewarding bad behavior achieve and will banking institutions be on a level playing field?

Embedded Capital

  • In times of distress, will Canada’s pitch to embed capital by issuing convertible debt impair or improve banking value?

Bailout Fund

  • Should the Canadian government be required to create a bank bailout fund to diminish potential future risk to its economy?
  • Resolution Regimes “Living Wills”
  • Should banks adopt “living wills” to curve systemic risk in the event of future financial crises?
  • Will banks be pressured to adopt new capital and liquidity controls towards the concept of an orderly unwind?

“Going into the G20 summit, Canada is ratcheting up the agenda to deliver its opposition to the International Monterary Fund over proposed global safeguards pronouncing its steady state through the financial crisis,” added Gileadi. “Looking back, Canadian banks were well capitalized and avoided the financial crisis while others leaned heavily on their government’s rescue packages. A key question looking ahead is: ‘Can Canada influence the world forum toward financial reform by virtue of its safe lending achievements?’”

According to Capco, strong cross-border coordination of regulatory reform is critical for financial transparency and market liquidity.

About Capco
Capco is a leading global provider of integrated consulting, technology and transformation services dedicated to the financial services industry. Our professionals combine innovative thinking with our unrivalled first-hand industry knowledge to offer our clients consulting expertise, complex technology and package integration, and managed services to move their organisations forward. Through our collaborative and efficient approach, we help our clients successfully increase revenue, manage risk and regulatory change, reduce costs and enhance control. We specialise in banking; capital markets; wealth and investment management; finance, risk & compliance; and technology. We serve our clients from offices in leading financial centres across North America and Europe. To learn more, visit our web site at www.capco.com.

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