Ever since David MacDonald of the Canadian Centre for Policy Alternatives accused our federal government earlier this week of giving our major banks bailouts, there’s been little talk of anything else. But not only were our banks not bailed out during the recession, they actually performed much better than many of the global banking systems. And who do we have to thank for it? That very federal government that’s been so harshly accused, and the Office of the Superintendent of Financial Institutions.
The Bloomberg Market’s second annual ranking of the world’s strongest banks has CIBC listed as #3 out of all the banks in the world. Number three. That’s pretty good and a strong indication that at least one of Canada’s banks is doing okay. But what about the rest of them? Turns out, we’re doing okay there, too. Toronto-Dominion Bank came in at #4; the National Bank of Canada came in at #5; the Royal Bank of Canada was #6; Bank of Nova Scotia was #18; and the Bank of Montreal was #22. No other country in the world had so many banks listed as high on the charts. None. And it’s mostly in part because the OSFI took such dedicated measures not only during the recession, but before it as well.
One way in which the OSFI kept the heads of Canadian banks above water over the past several years was by requiring them to hold more capital than is required by the Basel I rules. These rules pertain to credit risk – the risk of handing out home equity loans and home equity lines of credit to borrowers who may not pay it back. Under the Basel I rules, banks are required to retain at least 8% of their risk-weighted assets in capital, just in case the loans are defaulted on – and half of that must be in Tier 1 capital (the highest and safest level of capital the banks have.) But, the OSFI made a big decision back in 1999 to force Canadian banks to hold back even more of their capital – 10% – so that they could be prepared for any eventuality that struck. And when it did, they were ready.
“I do not think it was popular at the time,” says Julie Dickson, OSFI’s superintendent. “That’s where having a supervisor with a pretty clear mandate allow you to make those unpopular decisions.” And thank goodness we do.
