World leaders may laud Canada's banking supervision system, but the country's banking overseer went to Wall Street to argue not enough is being done to emulate it.
The push to fix the global financial system needs more emphasis on supervision, which helped keep Canada an island in the financial tempest, Julie Dickson, the head of Canada's Office of the Superintendent of Financial Institutions, said in a speech yesterday at an event put on by the Canadian consulate in New York.
"I am seeing a tendency to ignore it [supervision]or down play its importance and focus more on the rules," Ms. Dickson said in her first public address in New York.
The default to rule making is understandable, but unfortunate, she said.
"Changing a rule is seen as a concrete step," she said. "It looks decisive."
By comparison, improving supervision is difficult and not easy for the public to grasp as progress.
Rules can create more risk by creating unintended consequences, such as capital adequacy regulations that create a false sense of security. Tight supervision, by comparison, can catch developing problems that rule makers may not have envisaged.
She compared her role to a referee in a sport: The rules are there but refs do much more than just enforce them.
"Rules are important but ultimately it is the referees who control the flow of the game."
She pointed to areas such as securitization, a huge cause of losses for the U.S. banks.
She said it wasn't rules that kept most Canadian banks from getting badly burned in that market, rather it was prudence and good supervision.
Ms. Dickson avoided commenting directly on U.S. policy proposals such as the new bill laid out by Democratic Senator Chris Dodd Monday that would tighten regulation of the financial industry. Choosing her words carefully in response to questions, she reiterated that the lack of focus on supervision is a global issue.
One issue, she said, is that "some countries, when you get right down to it, fear having a strong regulator," she said.
There's concern that oversight will hurt competitiveness, she said, something her office doesn't think about because its role is only to ensure safety and solvency.
"It's a fundamental tradeoff," she said. "Conservative practice can be seen as slowing down growth."