Good evening. My name is Darren Hannah and I am the Acting Vice-President of Policy and Operations with the Canadian Bankers Association. I am very pleased to be here today at the Committee’s invitation to discuss the banking industry’s relationship with our prudential regulator, the Office of the Superintendent of Financial Institutions. With me today are representatives from some of the CBA’s member banks: Mr. Sean McGuckin, Executive Vice President and Chief Financial Officer of Scotiabank; Mr. Kent Andrews, Senior Vice President of Regulatory Risk and Risk Capital of TD Bank Group; and, Mr. Chris Elgar, Chief Risk Officer of Manulife Bank and Trust. In addition, I am joined by colleague from the CBA, Debbie Crossman, Director of Financial Affairs.

The CBA works on behalf of 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 275,000 employees.

The strong relationship that exists between the banking industry and OSFI has served Canada well. This was demonstrated during the global financial crisis when Canada’s banks fared much better than their counterparts in other jurisdictions. Canada is consistently recognized as having one of the strongest banking systems in the world. In fact, Canada’s banks have been ranked by the World Economic Forum as having the soundest banks in the world for six consecutive years. We largely attribute this strong performance to two factors: first, the prudent manner in which Canadian banks are managed; and second, the strong regulatory and supervisory framework for banking in Canada. The CBA strongly supports OSFI’s work internationally, and in particular their efforts to ensure that banks in other jurisdictions are subject to the same level of high quality regulation and supervision as Canadian banks.

The Canadian banking industry is one of the most heavily regulated and supervised sectors of the economy. For example, Canadian banks are required to meet stringent OSFI guidelines in a wide range of areas, such as capital, liquidity, leverage, corporate governance, accounting, and stress testing. Some of these guidelines are quite extensive; for example, OSFI’s capital adequacy requirements guideline totals several hundred pages. However, while there is a significant cost to ensuring that banks are compliant with OSFI’s guidance, the CBA and its member banks recognize the importance of effective and appropriate banking supervision given the banking industry’s critical role in the economy and our extensive efforts to manage risk throughout the system.

It is important that the banking prudential regulator have adequate resources in place to understand risks and set out appropriate rules and guidelines. In this regard, OSFI has been very clear with the banking industry about its commitment to continually increase and improve its core competencies. This does not mean, however, that we are unconcerned with the volume of regulation. As we have stated publicly on numerous occasions, the overall complexity of compliance has increased significantly in recent years as the quantity of regulation has expanded and we must ensure that the right balance is struck to ensure competition and innovation in banking continues to be encouraged.

In Canada, unlike in some other jurisdictions, banks are fortunate in that they deal with only one prudential regulator – OSFI – which simplifies the regulatory process. The CBA and its members deal with OSFI on a regular basis. Banks’ interactions with OSFI are wide-ranging and can include responding to OSFI requests for data and information, performing self-assessments of their compliance with specific legislation or guidance, and facilitating OSFI’s reviews of certain business lines to identify potential deficiencies in the way banks are managing risk.

OSFI consults directly with the banks as well as publicly on any significant changes it is proposing to make to its guidelines or other requirements. The CBA believes that these consultations contribute to transparency in the rule-making process and result in better outcomes for all. By maintaining such an active dialogue, OSFI and the banking industry are able to cooperate to ensure that proposals will work in practice and to avoid any unintended consequences. Consistent with its mandate, OSFI monitors and evaluates system-wide events or issues that could negatively impact the banking sector and stands ready to update its guidance accordingly.

The Committee may be interested to know that in the fall of 2012, The Strategic Counsel, an independent research firm, conducted a consultation on OSFI’s behalf with deposit-taking institutions, to explore perceptions of OSFI’s performance in the discharge of a number of key elements of its mandate. The consultation comprised a series of confidential one-on-one interviews with executives and professionals representing a cross-section of the deposit-taking institutions regulated by OSFI. The consultation findings concluded that overall impressions of OSFI are positive in most areas and that OSFI is perceived as highly effective in monitoring and supervising deposit-taking institutions. The report containing these findings can be found on OSFI’s website.

The CBA and its members continue to work hard to maintain and strengthen their relationship with OSFI, which we believe is a key component to ensuring the continued success of the Canadian banking industry. We would like to once again thank the Committee for the opportunity to answer questions regarding the relationship of the CBA and its member banks with OSFI.

We look forward to your questions. Thank you.