Bank of Canada takes aim at Dodd-Frank on bank failures

Reuters News
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Posted: Jun 25, 2015 12:09 PM

By Claire Cameron

WINDSOR, Ontario (Reuters) - The Bank of Canada, frustrated by unilateral U.S. moves which regulate Canadian banks with U.S. subsidiaries, called on Thursday for the possible adoption of a bilateral agreement to clarify responsibilities in winding up failed banks.

Deputy Governor Lawrence Schembri took aim at the U.S. financial reforms under the Dodd-Frank Act of 2010, which required U.S. subsidiaries of big international banks to meet separate capital and liquidity requirements inside the United States, in order to deal with possible bank failures.

"If a Canadian bank with U.S. subsidiaries were to fail, it bears asking whether the preemptive actions of U.S. authorities would create obstacles for the orderly resolution of the consolidated bank by Canadian authorities," Schembri said.

Dodd-Frank might constrain the Canadian bank`s ability to allocate capital and liquidity in the North American market, he said.

"Canada and the United States should consider the option of a bilateral agreement on the resolution of banks with cross-border operations in order to clarify responsibilities and enhance cooperation," he said in the prepared text of remarks to a business audience.

Schembri, one of two members of the central bank's governing council responsible for financial reform, said that notwithstanding his call for a possible bilateral deal, the Group of 20 leading economies should continue to press for a multilateral agreement, but this could take several years.

He also said a Dodd-Frank provision on the reporting of data on derivatives effectively precluded data that was reported by Canadian banks to U.S. authorities from being used by Canadian financial authorities to assess systemic risk in the over-the-counter derivatives market.

"To summarize, national authorities should strive to build trust and achieve more cross-border recognition of comparable regulatory requirements," Schembri said.

(Reporting by Claire Cameron; Writing by Randall Palmer and Leah Schnurr; Editing by Chris Reese)