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March 28, 2011 at 09:28 AM
Ted Price, assistant superintendent of the Office of the Superintendent of Financial Institutions (OSFI), said Sunday that the next global banking crisis could be on its way and that regulators should bear down on the financial industry before it hits.
His remarks came as global banking regulators discussed extra capital cushions that could be implemented based on risk and size of financial institutions classed as systemically important financial institutions (SIFI), banks considered “too big to fail.”
Reuters reported that Price spoke in Calgary regarding the possibility of another crisis as the Institute of International Finance (IIF), a global banking lobby group, was pushing back against G20 efforts to tighten capital and liquidity requirements to try to prevent just such an event.
From a regulator’s point of view, said Price according to the text of prepared remarks, banks are entering a “dangerous” stage thanks to high profits and a willingness to pursue risky asset investments that offer the potential for high returns. He was quoted as saying, "I believe we have passed the easy part of the cycle, and it is time for regulators to get tough." If they fail to do so, another crisis could result: "I think we have seen this movie before, but the amazing thing is we continue to expect a different ending."
The Basel Committee on Banking Supervision has been asked by world leaders to come up with additional safeguards for big banks so that they will not believe that they will automatically be rescued thanks to their size and importance, and so that they will be less likely to need taxpayers to bail them out in the event one oversteps and lands in trouble. A requirement to hold extra capital is one such measure, and according to regulators, banking officials and analysts, the committee is considering 1-3% of additional capital on top of a bank’s minimum requirements.
