G-20 Regulatory Reforms Will Adversely Affect Canadian Banks - Desjardins Securities Analyst

Canadian banks are expected to be less affected than their global peers by the regulatory reforms that emerged from the G-20 leaders meeting in Washington over the weekend.

Elements of the action plan include a call for weaknesses in accounting and disclosure of off-balance sheet vehicles to be recognized by accounting standards, for authorities to ensure that financial institutions maintain adequate capital, particularly in terms of requirements for structured credit and securitization, a revamping of compensation schemes, and the reduction of systemic risks linked to credit default swaps and over-the-counter derivatives.

While calling the plans an improvement, Desjardins Securities analyst Michael Goldberg said CIBC (BCM) and Bank of Montreal (BMO) will see the most adverse effects. This is due to their greater involvement in structured credit and off-balance sheet vehicles.

He told clients:

We also expect these measures to have a negative impact on trading revenue, leading banks to retreat from more exotic trading activities.