Financial reform taking too long, uncertainty hurting banks: Flaherty

“We shouldn’t be distracted by bank levies and those kinds of issues which don’t cut to the chase and the chase is decreasing the likelihood of reckless risk-taking which we saw a couple of years ago,” he said.

“Uncertainty is the enemy here, and banks and other financial institutions need to know as soon as reasonably possible what the quality of capital standards is going to be and what the cap on leverage is going to be.

A report by the Conference Board of Canada, released Monday, backed up Flaherty’s position, arguing that global leaders haven’t acted quickly enough to follow through on calls for financial reform.

“Two and a half years after the onset of the global financial crisis, it remains unclear whether the turmoil will result in significant changes to the global financial system,” the report said.

“If fundamental reforms are to be implemented at all, they need to be agreed upon soon. In any case, if the reform process does not move ahead now, the momentum for reform will die,” it added.

Countries around the world have been working to come up with a new set of international regulations to prevent a repeat of the financial meltdown that saw the failure of some major international banks while others survived only with massive taxpayer-backed bailouts.

The Basel Committee, an international body based in Switzerland that sets global banking standards, has proposed stricter international regulations that change the way financial institutions handle loans, including a requirement that each bank set aside more cash to back up mortgages in case of default.

Another proposal that has been floated is a bank tax that would be used to protect large financial institutions from failure in the future.

The tax is favoured by several large European countries and the United States, but Canada has been arguing that its banks should not be subject to the tax since they did not require government money to remain solvent during the financial crisis and any bank tax would ultimately be passed down to consumers.

Flaherty also questioned Monday whether deficit-laden governments would realistically hang on to the proceeds from the tax in case of another financial crisis, or whether that money would be spent elsewhere.

On the weekend, Flaherty won over his counterparts in the G20 at meetings in South Korea, where the finance ministers agreed that each country will be free to choose its own way to deal with the issue.

In Canada, Flaherty said he wants to implement a so-called “embedded contingent capital provision” — essentially a security that would convert into common shares if the bank ever found itself in trouble, guaranteeing a source of capital that could be accessed as needed.

“We may see different ways of addressing the issue but what we won’t see in the majority of the G20 is a bank tax,” Flaherty said.

Canada will host the G8 and G20 summits later this month, meetings that have been the source of some political controversy because of their high price tag. The total cost of hosting the meetings hasn’t been tallied yet, but the security alone has an estimated cost of nearly $1 billion.

Flaherty said it’s necessary for governments to spend substantial amounts to pay for tight security during the meetings.

“In today’s international environment, unfortunately it’s necessary to spend substantially to have security. It’s Canada’s turn, and it’s necessary that we either don’t take our turn or pay the appropriate price to have the security that is necessary so that everyone is safe here in Toronto,” he said.

Flaherty said Canada will use the meetings to emphasize the importance of fiscal consolidation, particularly in debt-wracked Europe, so the economic recovery isn’t derailed.

“There is a risk to economic growth generally if the fiscal consolidation issue is not dealt with expeditiously and effectively,” he said.

The finance minister was in Toronto to speak at the International Corporate Governance Network’s annual conference.

IE