The Basel III regime requires a significant departure from the
established thinking and practices of banking regulation. Its
signature feature, arising as a direct response to the experience
of the recent global financial crisis, is the priority placed on
liquidity management.
Setting an adequate standard for liquidity, and gauging
compliance with that standard, requires new tools, new
calculations, and a new, conservative attitude on the part of
regulated financial institutions to assets and products which,
while secure from a creditworthiness perspective, require a
liquidity commitment. The new regulatory burden is lighter for
Canadian banks, having avoided the worst of the financial crisis,
than for their European and American cousins. The government-backed
security of Canadian mortgage debt, for instance, and the highly
concentrated nature of the banking sector in Canada somewhat reduce
the need for rigorous liquidity oversight.
