Winnipeg Free Press - PRINT EDITION

Don't let rules stifle growth, exiting Scotiabank CEO says

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TORONTO -- Scotiabank chief executive Rick Waugh says financial policymakers need to take a step back to ensure new regulations placed on the world's banks don't stifle economic growth.

The outgoing head of Canada's most international bank issued the advice in a speech Thursday that called on banks to take on more responsibility for lending risks or for regulators to ease up on rules designed to prevent another massive failure of a financial institution.

Contrary to some people's beliefs, banks need to take on "a certain level" of risk to help the global economy, Waugh said.

"We have to take risk," he added in a media conference after his speech to the Economic Club of Canada. "You're not performing your function in society and in the financial sectors if you don't."

Capital levels at Canadian banks are widely considered stronger than those in most of their international peers under the new Basel III rules that set out key measures of a bank's health and ability to endure future economic downturns.

Basel III came in response to the financial crisis in 2007 and 2008, but the more strict regulations caused many of the world's biggest banks to drastically change the way they operate and increase capital requirements.

"No amount of capital can save a poor bank," Waugh countered. "(It takes) good management, risk assets and liquidity."

He pointed to the failure of Lehman Brothers that went bankrupt even though it passed the leverage ratios that were required, which he said suggests a failure in risk management rather than in regulation.

"If you had regulated, I don't think whatever rule they would've had at the time -- or the rules they have today -- would've necessarily caught it," Waugh said.

"Somebody's got to take the longer view," he said. "We've got to get this dialogue (to) the policy-setters, and then the regulators will act accordingly."

In his speech, Waugh said regulations are having a "transformational effect" on the industry that eclipses any of the existing market forces because some institutions are being forced to sell assets they can't handle or exit some countries.

 

-- The Canadian Press

Republished from the Winnipeg Free Press print edition September 6, 2013 B8

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