Julie Dickson, Superintendent for the Office of the Superintendent of Financial Institutions, shown iat a media briefing n April, 2008.Fred Lum/The Globe and Mail
The Office of the Superintendent of Financial Institution should move sooner rather than later to end the informal, quasi-voluntary extra requirement of the past two years for the building up of bank capital - a return to normality that Julie Dickson, the Superintendent, said on Tuesday is now likely.
The Canadian banks are in little or no danger, at this point in history, of reckless lending. The capital requirements that are officially in effect now - just as they were before the international financial crisis struck in September, 2008 - were not loose and they did not tempt the Canadian banks into folly.
Virtue, however, is not always fully rewarded. On Sunday, the Basel Committee on Banking Supervision will meet with the world's central bankers and banking regulators to propose and discuss new international capital ratios. It is possible that these will be more strict than Canada's currently enacted rules. Probably they will not be hard for Canada to live with, but it would be premature to end the extra dose of caution until this becomes clear. If the Basel proposals are reasonable, Canada can then plan a transition, to take effect after - or if - the G20 confirms the new standards in November, in Seoul.
Gordon Nixon, the CEO of the Royal Bank of Canada, made clear how little Canadian banks are at any risk of irresponsibility when he recently said that the demand for credit from credit-worthy companies is low. Canadian companies' balance sheets are strong, which is an expression of their postrecessionary caution and reluctance to borrow.
It is not the duty of the chartered banks to offer a stimulus package by seeking out dubious borrowers, though stimulus may sometimes be good government policy. Indeed, banks' errors have sometimes been results of governmental pressure to lend - as with the "recycling" of petrodollars in the 1970s.
Canadian households are still quite indebted. But many household balance sheets will be repaired once some of the banks feel free to increase their dividends, after OSFI's additional requirements are retired. Bank shares are held by large numbers of Canadians, as well by their pension plans, so rising dividends will strengthen savings.
The National Bank and the Bank of Nova Scotia have already intimated that they will raise their dividends before very long. Share buybacks and acquisitions may also be on the cards for some Canadian banks. In any case, the restoration of comparative freedom will be welcome evidence of financial business as usual.