I recently wrote a post (view) about how Canada's OSFI, the governing branch for our financial institutions, has been quietly introducing new rules that will have dramatic repercussions for how our banks do business.
Yesterday, a very interesting new change was reported by the Globe and Mail...
"Canada's financial regulator has told banks and insurance companies they must finance any big takeovers by issuing new shares, making major acquisitions more difficult just as the country's banks are at the height of their international prowess.
Issuing equity in a big deal would risk angering shareholders because their stock would be so diluted. At the same time, the banks find themselves in a state of limbo as they await the outcome of negotiations among global regulators on standard minimum capital requirements."
Takeovers Grow Difficult for Banks
It's another example of the OSFI's obsession with bank capital, despite it being at record levels:
"UBS analyst Peter Rozenberg has estimated Canadian banks would have about $40-billion in excess capital in 2012 over and above a Tier 1 ratio of 10 per cent.
'The Canadian banks overall are well positioned for the expected changes in regulatory capital requirements that are being discussed on a worldwide basis,' CIBC's Mr. McCaughey said."
Even if global minimums for bank capital are increased by the Basel Accords as anticipated, Canada is extremely well-positioned and likely to exceed any new requirements already. Which raises the question - are our banks being overly cautious to the detriment of Canadian economic growth?
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