By Robb M. Stewart


OTTAWA--Canada's banks will have another year to adopt a new capital measure aimed at ensuring lenders can withstand financial shocks, leveling the playing field with banks in the U.S. and Europe.

The country's bank regulator said Friday it would push back by one year the phase-in rules that would increase the capital-floor level, which affects how banks calculate risk-weighted asset ratios. The measure is an element of global reforms known as Basel III that were rolled out in the wake of the 2007-2008 global financial crisis.

Also known as the output floor, it requires that risk-weighted assets generated by banks' individual internal model-based approaches can't fall below a percentage of risk-weighted assets calculated by a standardized approach. The aim is to reduce excessive variability and increase comparability of risk-based capital ratios, though some economists had warned the adoption in Canada much earlier than in the U.S. and Europe would affect closely watched common equity tier one capital ratios and mean less available equity for the banks.

The Office of the Superintendent of Financial Institutions said institutions using internal models will subject to a capital floor on risk-weighted assets, but banks will now see the floor adjustment factor held at 67.5% in 2024 and 2025, then rise a year later than previously planned to 70% in 2026 and to 72.5% in 2027.

Last month, the European Union delayed the introduction of core element of Basel III reforms dealing with how banks cover market risks in their trading books by one year to January 2026 to bring lenders there more in line with the expected timetable for adopting the final Basel reforms in the U.S.

The oversight body of the Basel Committee on Banking Supervision in May affirmed expectations all aspects of the Basel III framework be adopted in full as soon as possible. Canada's bank regulator said it remains committed to Basel III and is optimistic its regulatory peers in other countries would work to implement the reforms, which were accepted internationally in 2017.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

07-05-24 1544ET