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Mr. Zelmer compared these efforts to the Glass-Steagall Act that was implemented in the U.S. during the Great Depression to prevent retail banking and investment banking from being conducted by the same organization.

Canada has no need to follow the U.S. approach because for decades banks in this country have benefitted from owning capital markets businesses. Ever since lenders were able to own investment dealers back in the 1980s the increased diversification of revenue “helped them weather several financial storms,” he said. “For example, profits from investment banking activities helped cushion bank profits a few years ago when commercial banking activities were experiencing rising loan loss provisions. By the same token, commercial bank profits over the years have helped some banks weather the occasional stumble in capital markets.”

Mr. Zelmer cautioned that the issue is not for OSFI alone to decide, but his comments make clear which way the regulator is leaning.

Peter Routledge, an analyst at National Bank Financial, said an exemption from a measure regarded by many in the industry as unnecessarily punitive would be a competitive advantage for Canadian banks if the other regions follow through on their plans.

“This would be good news for the banks,” he said.

Mr. Zelmer also reminded the industry that OSFI wants banks in this country to meet the minimum 7% common equity requirement at the beginning of the phase-in period for new internatinal banking rules known as Basel III starting January 1. Most other countries including the U.S., Britain and Europe are also moving to adopt the new standard though some such as Switzerland and parts of Scandinavia are expected to significantly increase the minimum for their banks. Analysts said OSFI as well may push the banks it regulates to move above the 7% level the next several years, though probably only by around 1%.