It is important to note that, in spite of Canada coming out of the financial crisis relatively unscathed, the Canadian financial system is not completely infallible. It is for this very reason that Canadian regulators cannot lose sight of the pursuit of a safe and sound financial system and the steps that it takes to maintain one. The timely implementation of Basel III is one of the most crucial steps that need to be taken in order to ensure that Canadian financial institutions remain stable. Before delving into the reasons why it is important for Canada to implement Basel III sooner rather than later, this post will give a brief overview of Basel III.

What were the main objectives of the Basel Committee for Banking Supervision (BCBS) in formulating Basel III? Primarily, there was the goal of strengthening global financial regulations, particularly capital and liquidity regulations, in order to create a more resilient global financial system and banking sector. The secondary objective, which was not adequately addressed in previous accords, was to increase financial institutions’ ability to absorb shocks. Given these two main objectives, the Basel III proposals centre on capital reforms, liquidity standards, and other initiatives to improve the financial system’s resiliency.

Now, why would it be in Canada’s best interest to implement the Basel III requirements as soon as possible, rather than a gradual execution as other countries have settled on? Generally speaking, it is better and more prudent to take a proactive approach than a reactive approach. In fact, OSFI’s Superintendent recently reiterated this by saying that, “When in unchartered (sic) waters, you do not want to test whether the boat is sound enough.” Essentially, it is better to act in a preventative fashion rather than wait until turmoil is on the horizon. Another reason why it is important for Canada to implement the Basel III rules is simply to remain competitive and reduce the chances for regulatory arbitrage. A final point is for Canada to maintain its international reputation for vigilant supervision. The accolades that the country has seen, whether it is from top international central bankers or gatekeepers, are the result of strong monitoring and regulation of financial institutions. The only way to maintain this global standing as an example of strong regulation is to not slip into complacency with the status quo and only change when it is necessary.