A big problem that arose from the Great Recession is what to do with large banks. A failure of a large bank (think Lehman Brothers) can cause considerable damage to the world economy. Some banks were deemed too big to fail: their failure would have caused catastrophic damage to the world economy.
What does being "too big to fail" mean? It means that, if such bank runs into problems it will be rescued by the government (as, for example, happened with Citigroup, Nexia and RBC). These banks have therefore an implicit guarantee from the government. This makes them safer than other banks and lowers their cost of capital. If unregulated competition was allowed, these banks would be more profitable and will buy up smaller banks, reducing competition. Eventually, in effect, the taxpayers would provide a blanket guarantee to the banking system.
To prevent that, G20 endorsed proposals to increase supervision and capital requirements of the "too big to fail" banks. The proposal dealt with the largest banks that were "systematically important" on the world scale.
The article reports that the Basel Committee on Banking Supervision, of which Canada is a member, recommends to extend the regulations to a second tier banks: "domestic systematically important banks". These recommendations will likely cover 5biggest Canadian banks (they may also include the National Bank of Canada which is much smaller than the top five, but is much bigger than any other bank.
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