Basel III: update and implications to Canadian investors
Across the globe, organizations are beginning to react to the new, more stringent regulations required as a result of the incoming Basel III international regulatory standards for bank capital adequacy and liquidity. Firms in all sectors of the financial services industry are looking closely at the new capital requirements and working to understand the impact of the redefinition of capital and how best to achieve and maintain the minimum requirements. Canadian regulators, working closely with the Basel Committee and the Bank for International Settlements, are looking to Canadian financial institutions to act responsibly and continue making prudent decisions.
On December 16, 2010, the Basel Committee on Banking Supervision released the text of the Basel III rules and the results of its Quantitative Impact Study. It is within this text that specifics around what types of assets are to be included and excluded from common equity calculations and what will be the minimum capital and liquidity ratio standards that financial institutions must maintain. This was an important next step in the adoption and implementation of Basel III capital and liquidity standards globally.
The Canadian perspective
Mark White, Assistant Superintendent of the Office of the Superintendent of Financial Institutions (OSFI) in Canada, has outlined several key components of the Canadian banking system that, in combination, helped sustain the stability of the financial industry. These included:
- A healthy economic and policy backdrop
- A robust and flexible financial regulatory framework
- Effective supervision
- Generally prudent practices of Canadian financial institutions.
Though Canada fared well during the 2008 market crisis, it is important to be an active participant in these reforms. As a G20 member, Canada sees the importance of being “prepared to fight the next war, not the last” and understands “that a more stable global system is in everyone’s interests.”
The message consistently expressed by members of the Basel Committee on Banking Supervision is one of collaboration and monitoring. As the new framework is implemented throughout the global financial services community, deliberate assessments and revisions are planned. At CIBC Mellon, we continue to monitor the progress of the Basel Committee. As Basel III evolves, we will be ready with sophisticated technology and asset servicing solutions to help meet the changing information needs of our clients in Canada and abroad.
By David Linds, senior vice president, business development and relationship management
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Trade Talk® is provided for general information purposes only and CIBC Mellon Global Securities Services Company, CIBC Mellon Trust Company, CIBC, The Bank of New York Mellon Corporation and their affiliates make no representations or warranties as to its accuracy or completeness. Readers should be aware the content of this publication should not be regarded as legal, tax, accounting, investment, financial or other professional advice nor is it intended for such use.
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