Bank towers in Toronto's financial districtMark Blinch
Canadian banks will have until 2023 to replace $77-billion of complex capital that will no longer count as an allowable buffer against a financial crisis, the country's regulator said.
The Office of the Superintendent of Financial Institutions issued its guidelines Friday for how long Canadian banks have before certain forms of capital, such as hybrid notes, are no longer eligible under banking rules.
Such capital did not act as an effective buffer during the financial crisis in 2008, when banks in Europe and the United States were forced to seek government bailouts to stabilize their operations. That prompted global banking regulations to be rewritten to ensure banks have a more effective capital cushion in the event of a future crisis.
From 2013 to 2023, the banks will have to reduce their non-common capital - essentially capital other than common equity - by at least 10 per cent a year, to comply with new global banking rules agreed upon last year. The banks will have to redeem the notes, or convert them to a form of capital, such as common equity, that complies with the regulations.
The changes come after the Basel Committee on banking supervision, a meeting of financial industry regulators from around the world, redefined what can be included in so-called Tier 1 capital, which the banks must keep on hand as a buffer. Tier 1 capital can be liquidated to absorb losses and stabilize bank operations during times of turbulence.
The Basel Committee released its minimum standards last month, prompting OSFI to advise Canadian banks on the expectations for the sector, and the schedule for phasing out non-compliant capital.
Although Canada's big banks withstood the credit crisis in 2008 without federal intervention, a number of banks in the United States and Europe required bailouts to stabilize their operations.
Grant Robertson