Trump’s administration has been slashing rules for financial institutions, claiming the cuts will bolster economic growth and revive innovation.Nathan Denette/The Canadian Press
Anthony Ostler travelled to Switzerland in May with a sobering message for the world’s banking standard-setter: If countries continue to apply new global capital requirements inconsistently, the competitiveness of the banking sector could take a hit as geopolitical turmoil destabilizes economies around the world.
The CEO of the Canadian Bankers Association wasn’t just delivering his warning on behalf of Canada’s big banks. He was also speaking for institutions around the world as the recently elected chair of the International Banking Federation, or IBFed, an international lobby group that collectively represents 18,000 banks. The membership is made up of national bank advocacy organizations, including the CBA, the American Bankers Association and the European Banking Federation.
Mr. Ostler began his new role in January just as U.S. President Donald Trump was taking office with pledges to relax the country’s banking regulation.
The Trump administration’s early moves have raised global fears the U.S. could derail years of work on new international banking standards that have been implemented in phases since 2008, when countries around the world agreed to toughen capital requirements for their banks to avoid another global banking crisis.
If individual countries don’t move ahead with the next phase – or if they roll back existing standards – it risks creating inconsistent global capital requirements that could disadvantage banks in countries such as Canada compared to their U.S. peers, Mr. Ostler cautioned the Basel Committee on Banking Supervision, or BCBS, and the Financial Stability Board in May.
Seven months into his international lobbying efforts to shore up consensus and encourage rule setters to level the playing field, Mr. Ostler says he is confident the U.S. will stick to its agreement with global peers.
Canadian banking regulator maintains domestic stability buffer for large lenders
But when it will adopt the rules and how far it will go to embrace them is still unknown, creating concerns for other countries and uncertainties in their own timelines for adopting the higher standards.
“What we need is confirmation of what that implementation looks like and timing. We’re in 2025 and it could be up to five years until it’s implemented,” Mr. Ostler said in a recent interview.
Mr. Trump’s administration has been slashing rules for financial institutions, claiming the cuts will bolster economic growth and revive innovation. As the U.S. eases up on stricter bank regulations and delays reforms intended to strengthen the financial system, Canada and other countries have paused the implementation of their own stricter banking standards – sparking concerns that the rules could potentially be abandoned altogether.
In 2017, regulators signed on to a plan known as Basel III Endgame, which adds additional regulations to an international accord struck after the 2008 financial crisis to help prevent bank failures. The final phase of the framework is aimed at enhancing the amount of capital that banks must hold against financial risks on their balance sheets.
But regulators in certain countries, such as the U.S. and Britain, have embarked on different implementation timelines, and some have attempted to layer on their own domestic rules, drawing criticism from the banking sector that inconsistency and tighter-than-required standards would hinder lending and harm the economy.
Canada’s banking regulator has increased the potential range of the domestic stability buffer – capital that banks must maintain to endure the blow of an economic downturn – to create requirements that are more onerous than the standard set by Basel.
In recent years, the Office of the Superintendent of Financial Institutions, or OSFI, has increased the buffer twice – hiking it to 3.5 per cent from 2.5 per cent – to build a bigger safety net and reinforce the financial sector as regional banks were failing in the U.S.
Opinion: Canada can avoid the U.S. open-banking mess – but only if it moves now
But the increase also forces Canadian banks to hold onto billions of dollars in excess cash, which critics say harms the ability of the country’s lenders to compete with global peers.
While previous changes to Basel standards helped strengthen the financial system and prevent contagion from some bank failures in 2023, Mr. Ostler calls the endgame framework a “straitjacket” and argues it requires lenders to hold onto an excessive amount of capital that dampens the ability of banks to lend to consumers and businesses.
“Global superintendents have decided they’d rather have very safe and sound systems than run the risk of failure,” Mr. Ostler said.
The final phase of the regulatory changes could also increase the cost of borrowing and make it more difficult for people to access loans, potentially stymying innovation and competition.
“If you’re a business, when you’re trying to make an incremental decision to make an investment, it will be harder for that investment to beat your hurdle rate.”
Mr. Ostler says the U.S. is focused on removing regulations that banks consider excessive, also known as gold-plating – policies implemented by regulators that go above and beyond the minimum requirement.
In June, U.S. regulators proposed dialling back a rule known as the enhanced supplementary leverage ratio. The Federal Reserve is also re-evaluating its stress tests, which assess whether big banks would withstand a potential recession.
After the failure of Silicon Valley Bank and other institutions in 2023, U.S. regulators proposed a dual capital requirement structure for banks – a move that was heavily opposed by the industry. Regulators have since retreated from the policy.
In mid-July, U.S. Treasury Secretary Scott Bessent said excessive capital requirements place unnecessary burdens on lenders that dampen lending, harm growth and force borrowers to the non-bank sector.
The Fed’s recently installed vice chair for supervision, Michelle Bowman, is also crafting a new proposal for the Basel III endgame framework.
But Mr. Ostler said the U.S. will not go so far as to abandon the Basel agreement altogether.
“They were heavily involved in the design of the system, and it was the Trump administration 1.0 that agreed to it,” Mr. Ostler said. “I’m a firm believer that they do want to do it, but they’re getting rid of all the endgame gold plating and looking at ways to reform how they do supervision.”
So far the U.S. has significantly lagged behind other countries on implementing the more rigorous requirements.
Canada had started implementing the regime but paused the rollout of a new Basel rule – known as the output floor, which affects the calculation of risk-weighted assets – indefinitely in February, citing uncertainty around whether other jurisdictions would fully implement the changes. A month prior, Britain had delayed its own implementation.
The delays cast doubt over whether Basel can maintain its authority as the global standard setter for regulation. Without international agreement on regulations, countries could diverge on standards, weakening the stability of the global financial system.
While the Basel committee said in May that all its members reaffirmed their commitment to implementing the framework, regulators are left waiting for the U.S. to provide details on its direction, Mr. Ostler said. The delay makes the global financial system vulnerable to shocks and leaves certain countries that have already done the work of implementing new rules at a disadvantage.
“What we want is the implementation, because if there’s inconsistent timing, it’s hard to run operations,” Mr. Ostler said. “It can create competitive disadvantage, for instance, for a Canadian bank if we’re implementing earlier than other countries.”
