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Basel Rules

OSFI is requiring Canadian lenders to comply with capital requirements stipulated by the Basel Committee on Banking Supervision this year, even though the nation can have six more years to implement the standards. OSFI also has introduced requirements for “contingent capital” that would help banks cover future losses and limit the need for taxpayer bailouts.

Banks have been losing favor with investors. Royal Bank of Canada, Bank of Nova Scotia and six other large Canadian lenders are trading at the lowest premium to U.S. bank stocks in more than two years.

The spread between the Standard & Poor’s/TSX Commercial Banks Index and the KBW Bank Index of 24 U.S. lenders is at its narrowest since January 2011, based on price to tangible book value per share, according to data compiled by Bloomberg.

‘Quite Resilient’

Canada’s financial system continues to be “quite resilient” and banks are stronger today than they were six years ago, Dickson said during a question-and-answer period.

“In 2013, the system is far sounder than it was in 2007,” she said. “I would say that the external environment, though, is more dangerous today than it was in 2007.”

Banks should be fine to take on more risk as long as they have the controls in place and are doing stress testing, Dickson said.

“There are huge incentives right now to go out the risk curve,” Dickson said. “Banks exist to take risk, but if you’re going to go out the risk curve, you better be on top of it, and be talking to your boards about your strategy and enhancing your risk management at the same time.”