Nobody’s saviour

Julie Dickson has kept our banks stable through one of the worst economic crises in recent history. But please don’t give her the credit.


The most powerful woman in Canadian banking has a corner office on the 23rd floor of a tower in Toronto’s financial district that looks as if it were furnished in one hurried trip to Ikea. To enter it, visitors first pass a large bathroom, then a spare room that lies dormant and dark—both were once part of the original office, but were amputated by her predecessor in a display of frugality. You could be forgiven, upon entering, for briefly mistaking Dickson for a college student, sitting facing the wall in a chair that’s too low, behind a no-frills desk that could have been assembled with an Allen key. There are no pictures of her two sons or her husband, no trinkets, no mess—just a squeeze bottle of Purell, a Porter Air water bottle, and a small black suitcase lying on the floor near the doorway.

As the head of the Office of the Superintendent of Financial Institutions—this country’s financial regulator—Julie Dickson pulls the strings on Bay Street. She is Canada’s top cop when it comes to ensuring that financial institutions are playing it safe. She is integral to the policy that is being credited with keeping the nation afloat during a financial storm that saw banks just about everywhere else in the world pushed to the brink because they had taken on too much leverage and excessive risk. She’s a leading figure among the tiny circle of key officials who are steering the country through the crisis. And in a resolutely low-key way, Dickson is putting her stamp on Canada’s financial system. She recently put the big banks on notice that her office will be reviewing their compensation practices. She is a key participant in a high-profile global forum that is advising G7 leaders on potential reforms to the international banking system. And during recent months, she stood her ground when bank execs put pressure on her to ease restrictions on their operations.

Finance Minister Jim Flaherty credits her with helping to shape public policy—and when she calls the CEOs of Canada’s big banks, they listen. “What she tends to do—and I give her extremely high marks for it—is say, ‘I’m attending all these forums around the world, and I just came back from this, and here’s the information that we’re getting,'” says one of these chief executives. “And she says, ‘Given this weather forecast, maybe you want to think about that.'” Whether she’s talking about an asset class that seems to be headed for trouble or new research on the relationship between employee bonuses and risk-taking, there’s rarely cause for the OSFI head to lay down the law. When Julie Dickson drops a hint, bank executives spring into action.

Yet, as a long-time bureaucrat largely known for keeping her head down, focusing on the details and letting others grab the spotlight, she remains an enigma to the industry, and an unknown to most Canadians.

Which is pretty much how Dickson likes it. Ask her where she’s from, and she blanches. Raise questions about the critical role she has played during the past few months of market turmoil, and she insists that the decision-making has been a team effort. But she will concede this: Her term as head of OSFI has been a wild ride—although she doesn’t phrase it quite that way. “The job has been more interesting than I anticipated,” she says, in a bit of dry understatement.

It’s early March, and Dickson is appearing as a witness at hearings of the House of Commons Standing Committee on Finance. Her light blond, shoulder-length hair, pearl drop earrings, and knotted blouse under a classic suit stand out in the dreary beige cell that is Room 209 of the West Block. The small clock high on the wall is permanently stuck at noon, or maybe midnight. This is Parliament Hill, where taxpayers foot the bill, and here, Dickson is the picture of poise.

She doesn’t flinch when Liberal MP John McKay tiptoes in, stumbles, and spills his coffee four seats away from her. She listens intently, from time to time taking notes, while other witnesses give their remarks. And when Liberal Finance critic John McCallum lobs a question about the tension between the Bank of Canada—which would like the banks to lend more to fuel the economy—and her organization, which has pushed financial institutions to keep large cushions of capital for a rainy day, she quietly but confidently responds that she believes she and central bank governor Mark Carney “are on the same page.” But she makes her point clear: “We have different mandates.”

Carney’s task has been to guide the economy out of its first recession in more than 15 years. Dickson’s is to carry the banks and insurers through the most tumultuous period the global finance sector has experienced in decades—and ensure that money Canadians place in them is safe. “I think it’s a healthy, natural tension,” says Flaherty, who along with his international counterparts has been working to ensure that the goals of regulators and central banks mesh as much as possible, and that they take into account the larger financial picture. Carney and Dickson meet frequently—Dickson’s primary office is in Ottawa—and along with Flaherty, associate deputy minister Tiff Macklem and the chief executives of the country’s biggest financial institutions form the core team stickhandling Canada’s response to the crisis.

By most measures, they’ve done well thus far. The International Monetary Fund says Canada’s financial system has displayed remarkable stability amid the turbulence. Canadian banks entered the crisis with strong financial reserves, and have skated through it without the catastrophic losses experienced by banks in other major countries—and without the government capital injections that are sending financial institutions elsewhere down the slippery slope toward nationalization.

At least some of the credit for this, though she’s loath to accept it, falls to Dickson. As head of OSFI, she has the legal authority to take tough measures to keep more than 450 banks and insurers—from the Big Five on down—healthy. Oh, and she also supervises about 1,350 private pension plans. Collectively, the financial bodies in her charge managed $3.75 trillion in assets as of the end of March, 2008.

If she and her 498-member staff—working out of offices in Ottawa, Toronto, Montreal and Vancouver—deem any institution to be in trouble, they can implement a range of disciplinary measures, including forcing it to hold more capital, requiring it to change its business plan or even taking control of its assets. Appointed to her position in mid-2007, Dickson began her term just as the first stage of the global credit crunch hit, and it’s fair to say that the regulator has never faced such intense pressure to ensure the ongoing viability of the sector—or so many demands to allow financial institutions to operate in unprecedented ways.

Government representatives and bank executives know they can reach Dickson at any hour, any time of day, and given the upheaval that’s prevailed during her tenure, they do. Manulife Financial Corp. chief executive Dominic D’Alessandro phoned her late last October to discuss the fate of his company.

OSFI’s rules required Manulife, a pillar of the financial system, to put aside billions in excess capital because plunging stock markets were eroding the massive investment portfolio the company keeps for payments it will have to make in the future. (By the end of September, the value of the funds that Manulife had invested in equities and bonds for segregated-fund and variable-annuity customers stood at $72.74 billion—$12.85 billion less than the company has guaranteed to pay out down the road.) Insurers’ financial cushions are evaluated using something called the minimum continuing capital and surplus requirements (or MCCSR) ratio. It’s based on a complex formula that determines how much capital the company has, compared to the risk of its businesses and investments. Insurers must keep the ratio above 150%, and Manulife tries to keep it above 180%. But when falling stock markets cause its investment portfolio to shrink, as it did last fall, its ratio also drops. D’Alessandro laid out a strong case to Dickson, arguing that the rules were too strict because the insurer would have years to rebuild its portfolio before it had to make those payments. His campaign eventually persuaded Dickson, who then, along with her team, struggled to quickly revise the highly technical rules in order to give Manulife—and other Canadian insurers—some breathing room.

While no one knows what might have happened at Manulife if Dickson hadn’t budged, it’s clear that she threw the company a much-needed lifeline, although not of the size that D’Alessandro would have liked. The chief executive wanted OSFI to relax the rules even further, but Dickson declined. Still, industry insiders say the move toward flexibility was an anomaly for the typically conservative OSFI head, and likely an agonizing one for her to make. Dickson suggests that the most worrying part was the challenge of rewriting the incredibly complicated rules on the fly—a challenge that could arise again, given the steady pressure her office has faced to reduce capital requirements. “We do make changes on occasion. The industry’s out there competing; they know a lot about what they see in the marketplace,” Dickson says. “They’re competing with unregulated players and they’re competing with foreign players. They’re bringing us information as to the kind of rules that they think these people are subjected to, and how it compares with our approach. And that will never stop.”

While insurers are judged by their MCCSR ratios, the key measure of a bank’s financial buffer is the so-called Tier 1 capital ratio, which compares the most solid capital it has—typically, common and preferred shares—to the size and risk of its loans and investments. To determine the ratio, OSFI’s credit-risk experts assign various weights to different loan portfolios and other assets based on the amount of risk they pose, and calculate the amount of capital the bank should put aside for them. Most global standards call for financial institutions to keep their ratios above 4%—a large proportion of the world’s banks entered the crisis with ratios of 5% or 6%—but OSFI has required the banks to stay above 7%. The federal regulator’s high standards hasn’t made life easy for the banks, but they have kept the financial institutions here healthy, says Royal Bank of Canada chief executive Gordon Nixon. “I think to some degree, that has provided benefit to the system. For instance, if banks were pushing for higher leverage ratios, OSFI was very reluctant.”

Still, it may be unfair to suggest that Dickson has brought a new conservatism to the OSFI post. The federal regulator has always been cautious, maintaining standards for Canadian institutions that are more stringent than those in much of the world. Some executives believe that past superintendents would have been more flexible than Dickson. But none of her predecessors presided over a time when the regulation of financial institutions was a matter of such public interest.

High-placed industry insiders use words like “private,” “reserved” and “technocrat” to describe Dickson. “I don’t know if anybody knows her well,” says Nancy Hughes Anthony, head of the Canadian Bankers Association. “She’s a regulator with a capital R.” Don Drummond, chief economist of Toronto-Dominion Bank, interviewed Dickson for a job in the federal government’s Finance Department when she was a student at Queen’s University, and has since witnessed the career path that landed her at the helm of OSFI. “Her No. 1 distinguishing feature, ever since the first time I met her, is she was quite quiet,” Drummond says. “I was sitting with [TD chief executive] Ed Clark one time, and he said, ‘Julie called me last night.’ I was surprised that she would call him directly. And then I realized, of course, she’d have to call him directly—that’s her job. But I almost couldn’t see her physically doing that.”

A long-time bureaucrat, the Saint John native began her career at the Department of Finance during the early 1980s—and had a front-row seat for the formation of OSFI, which didn’t exist at the time. Her formative years were spent working on revisions to the Bank Act, and on various areas of financial institution policy, including shaping OSFI’s mandate. The central regulator was created following a massive review of the sector—prompted by the collapse of two small Western Canadian banks, Canadian Commercial Bank and the Northland Bank, in 1985—that led to the merger of the country’s banking and insurance regulators and the creation of OSFI in 1987. (Historically, the Canadian banks received relatively little government oversight.)

Dickson—who many associates assume is younger than her 51 years—joined OSFI in 1999, and the following year became assistant superintendent of the regulation sector. During her six years in that role, she wasn’t being groomed for the top job, but “we knew at the time that she had the potential,” says John Palmer, who was head of OSFI at the time. “She’s got very good common sense, very good judgment.” She became deputy superintendent during the summer of 2006, under her boisterous predecessor and former Finance Department colleague Nicholas Le Pan. When Le Pan resigned that October, Dickson was appointed acting superintendent, but it would be almost a year before Flaherty announced that she had officially been given the superintendent’s job. “I think the assumption on the Street was that the new superintendent was coming from outside,” says former finance minister and deputy prime minister John Manley. “I certainly had the impression that they were looking at other candidates.” Flaherty says there was no special reason for the delay. “I was very happy to recommend her when I had the opportunity to interview her,” he says. “I think the concern was to make sure that we had the right person in place, because it’s an important job, and it’s also a sensitive job in dealing with the financial institutions.”

Dickson’s term—a seven-year appointment—opened with a crisis. In August of 2007, Canada’s $33-billion market for non-bank asset-backed commercial paper seized up, and some players pointed the finger at OSFI. When the market was collapsing, a number of commercial-paper conduits turned to their banks—many of which were foreign—and asked to tap into prearranged emergency lines of credit. Some of the banks refused to pay, citing a specific clause in the credit deals that the banks argued gave them an out. OSFI had effectively encouraged the banks to have the clause written into the deals, critics charged, since the institutions that didn’t were required to hold larger financial cushions than those that did.

Under fire, Dickson took the highly unusual step of calling a news conference last April to defend OSFI’s rules, saying the regulator “did the right thing.” She patiently outlined her argument, which boiled down to the fact that the regulator’s job is to protect banks and their depositors, not investors in complicated investment vehicles. After the conference, Dickson remained on the hot seat to take pointed questions from the media.

When talking about her strengths, more than one associate refers to Dickson’s common sense, and her ability to listen to a problem and identify key issues. “Julie is very tough—she’s got a very strong backbone,” says Palmer, the former OSFI head, underlining the importance of this quality in a role that occasionally requires facing off against powerful companies or, for that matter, politicians. (To maintain their independence from the Finance Minister to whom they ultimately report, superintendents can only be removed for cause.) “If you want to win a popularity contest, you should not be working for OSFI.

“At one point in my mandate, we had almost every one of our stakeholders mad at us for something,” he recalls. “I said, ‘We must be doing something right.'”

In many ways, OSFI’s style of regulation is one of trust, or in Dickson’s lexicon, “reliance.” Dickson is like the loving parent who coaches a child in the right direction through frequent heart-to-hearts, and who cautions them when she sees them veering off course. OSFI ranks Canadian financial institutions on a ladder according to its perception of how much trouble they might be. Those at the top—that list typically includes the Big Five banks—are the good kids who have their bedrooms in order and require minimal ongoing supervision. A team at OSFI will monitor their financial reports, meet with their officials and, once a year, report to the Minister of Finance on their health. Those at the bottom are disasters waiting to happen, and the regulator steps up its oversight accordingly. Only when banks slip to the bottom rungs will OSFI go into their rooms and clean things up on its own.

“We rely on the management and the board and the controls within the institutions,” says Dickson. “We spend a lot of our time focusing on the quality of controls.” OSFI has been actively pushing banks not to be complacent when it comes to risk management, for example, by promoting ways they can spot problems early, including ensuring that managers in various parts of an organization are in close communication, finding effective ways to monitor employees, and “stress testing” or running the institutions through Armageddon-like economic scenarios to see how they will fare.

The U.S. system of bank oversight, in contrast, more closely resembles a group of babysitters who lay out dozens of rules and then watch—if the rules are broken, they bring out the punishments. This emphasis on rules has led to a concomitant focus on circumventing them: Observers say financial institutions often hire teams of lawyers to help them find loopholes in the regulations. Ed Clark points out that TD Bank has some 17 individuals from various regulatory bodies working on site in its American operations, attending meetings and looking at documents. “There’s always a risk in the U.S. system that you say, ‘As long as I satisfy these 17 people, then I’m all right.’ Whereas Julie says, ‘No, you own responsibility to make sure that TD Bank lives another 150 years—not me. My job is just to make sure that I’m happy that you’re doing a good job.'”

OSFI’s approach has frequently been cited as a key factor in Canada’s ability to nimbly manoeuvre through the crises, generally nipping problems in the bud before they burgeon into full-blown disasters. As well, the relatively small size of this country’s financial sector makes communication simpler and more direct. “It’s easier for us to get our arms around the industry,” Dickson says. “The bulk of it is concentrated in a few players, and if you get your arms around them, that’s half the battle.” Having felt that embrace, Dominic D’Alessandro agrees. “It’s a small market here, and we are still a principles-based form of regulation. We actually do listen to our regulator.”

Those who don’t have to face Julie Dickson, who acknowledges that, once in a while, a Canadian financial institution will go the American route and bring out its lawyers instead of heeding her advice. “You do find, on occasion, an institution that doesn’t operate [the Canadian] way,” she says. “It might approach [a contentious situation] in a legalistic manner and come forward and say, ‘Well, this is clearly okay.’ They might not even come forward—they might just do it.

“I don’t recommend that as a strategy,” Dickson says. “Because we will find out about it.”


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