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OSFI is worried!


While the world’s central banks and banking regulators from Japan, via Frankfurt and Washington are screaming from the rooftop that all is well in “Bankland”, the one country that has seen no banking run, failure or rescue (aside from some rather substantial liquidity facilities when the international money market froze during the peak of the crisis).  Canada’s banking regulator is taking a very different tack, fear that the next banking crisis is around the corner – and not years way.  Canada central bank’s quarterly analysis of the international financial system takes the same view.

"I think we have seen this movie before, but the amazing thing is we continue to expect a different ending," said Ted Price, assistant superintendent of the Office of the Superintendent of Financial Institutions (OSFI), according to the prepared text of a speech in Calgary, Alberta.

The world's banks are now entering a "dangerous" phase from a regulator's point of view, where profits are strong and they are increasingly willing to invest in risky assets that offer high returns […].  What comes next is usually a reluctance to stop risky behavior even though returns are diminishing, setting the stage for the next crisis. "I believe we have passed the easy part of the cycle, and it is time for regulators to get tough," he said.

Mr. Price's blunt warning came as the global banking group, the Institute of International Finance, is pushing back against efforts by G20 policy makers to impose stricter capital and liquidity standards on banks in hopes of preventing bank failures and bailouts like those seen in the last crisis.

(Source:  Thomson Reuters, 2011)

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