The banks’ provision expenses are at their highest in several years, which could suggest expectations of a deterioration in repayment rates. This contrasts with the drop in the system’s delinquency rate, explained by increased write-offs and restructurings, and a portion of the withdrawn pension savings used for debt payment. As for the cost of bank financing, it remains low in historical perspective for the different users of credit, supported by the expansionary nature of the measures implemented by the CBC. To put it briefly, the economy has improved after the sharp contraction of the second quarter, and measures to support households and credit have succeeded in mitigating the threat posed by the pandemic to the welfare of the population and the solvency of businesses. However, the prolonged sanitary restrictions, the lingering recovery of the most affected areas and the scars left by the crisis have held back the dynamism of the recovery, affecting not only aggregate demand but also the response capacity of supply. Consequently, the fall in activity this year will be sharper than we expected in September. Even so, the economy will continue on a gradual path to recovery in the coming quarters and is still projected to return to September 2019 levels only by 2022. This considers that the pandemic situation will permit maintaining higher levels of mobility than those of mid-2020, and that during 2021 progress will be made in the immunization process, as stated by the government.
Its adoption by over 100 countries has helped to strengthen the safety and soundness of the international banking system and has contributed to the achievement of competitive equality. However, the financial world has changed dramatically over the past dozen years, to the point that the Accord’s efficacy has eroded considerably. Its broad brush approach to differentiating credit risk encouraged banks to undertake regulatory arbitrage transactions. Furthermore, as banks have developed innovative techniques for managing and mitigating risk, credit risk now exists in more complicated, less conventional forms than is recognized by the 1988 Accord, thus rendering capital ratios, as presently calculated, less useful to banking supervisors. Today’s marketplace also provides an imperative for revising the 1988 Accord. The rapid pace of technological change places information that was once largely the domain of analysts and institutional investors into the hands of millions of individual investors and consumers. Market participants, armed with timely and meaningful information, reward sound risk management practices and penalize those banks that are found deficient in this area. A bank’s regulatory capital position can be a strong indicator of how it supports its risk, and if markets are to impose an optimal level of discipline on banks, we must ensure that regulatory capital measures reflect risk as precisely as possible. I believe that reform of the Basel Accord is thus clearly in the markets’ best interests. As the Committee continues to develop a more risk-sensitive capital adequacy framework, we cannot lose sight of the need to keep the Accord up to date.