Rick Waugh, president and CEO of Scotiabank.Ian Jackson
Canada's top bankers are pushing back against a crusade for tougher global rules that would govern the financial sector.
The chief executive officers of the country's biggest banks, fearing that reforms to the global banking industry are being hammered out in haste, are becoming unusually assertive in speaking up about the issue as the G20 summit in Toronto draws near. They worry that the common ground among policy makers could lead to the imposition of punitive rules that harm their businesses.
One proposal, for example, would not give Canadian mortgages enough credit for being liquid assets and would require them to be backed by too much capital, bankers say. That would have a major impact on Canadian banks, whose domestic mortgage portfolios are the most significant part of their retail lending operations.
"When you're going to change the financial model of the world, be very careful how quickly you act," Bank of Nova Scotia CEO Rick Waugh said in an interview.
"Politicians who are mad at Wall Street want to take their pound of flesh. Regulators, no matter how well intended, are not interested in growth, they're interested in safety. And you can have a perfectly riskless banking system which will not lend, which will not grow, and that leads to an economy that doesn't grow. So, leaving it just to the regulators is dangerous, leaving it just to the politicians is dangerous."
Mr. Waugh plans to speak on the topic at the bank's annual meeting in St. John's today, as have his counterparts at Royal Bank of Canada and Toronto-Dominion Bank.
The six men leading Canada's major banks tend to shy away from public comments about what policy makers should do.
They have access to key regulators and top officials in Ottawa, and prefer to use those channels to relay messages in private.
But their willingness to break with the practice of quiet diplomacy signals the importance they place on heading off a string of new proposals that politicians and regulators are considering in the wake of the financial crisis. It also illustrates a growing concern that it may become more difficult for Canada to chart its own course on banking regulation now that the G20 has agreed to work together. As a result, the messages that the bank CEOs are sending must reach ears in Europe and the U.S.
"We overstate the degree of our muscles," Mr. Waugh said. "We're heard, but we're not one of the big economies."
Mr. Waugh said his main message for Canada's politicians, central bankers and regulators that they should negotiate, because higher capital levels and better international rules are good things, but should avoid agreeing to changes just to harmonize with the American or European models.
"We have a unique model which has proven itself in good times and bad," Mr. Waugh said. "If it ain't broken, don't fix it."
Mr. Waugh thinks new proposed global rules don't recognize that mortgages are a lower-risk product for Canadian banks than they are for banks in some other countries. That's because they are often insured by Canada Mortgage and Housing Corp., which means the government would effectively cover the bank's losses if the homeowner defaulted.
"I don't think it's well understood that our insurance is sovereign risk, it's not a private insurance scheme like the one behind a lot of the mortgages in the U.S.," Mr. Waugh said. "And the reason this is not understood is not that we don't have people who can understand it, it's just that it's been done in such a hurry by 20 regulators, 20 politicians, and 20 central bankers all sitting together in a room in a short period of time saying 'things have got to change.'"
As a result, policy makers are inadvertently making the system riskier, he said. For instance, the rules could prompt Canadian banks to sell off or securitize the bulk of their mortgages.
"If it's securitized, it's off our balance sheet. It's sold, it's somebody else's problem, and I don't have to put capital up and I don't have to put liquidity up," Mr. Waugh said. That would undo one of the strengths of the Canadian banking system, he added.
He urged all parties to work together, and to take their time on the details.
Editor's note: An earlier online version of this story stated incorrectly that Canadian banks' domestic mortgage portfolios account for 40 per cent of loans. This online version has been corrected.