timothy lane : financing commodities markets remarks by mr timothy lane, deputy governor of the bank of canada, to the cfa society of calgary, calgary, alberta, 25 september 2012. * * * introduction good afternoon. i want to thank the cfa society of calgary for inviting me to speak to you today. i would like to take this opportunity to share some thoughts on the role of the financial system in our natural resource economy. in particular, i would like to focus on the changing relationship between the financial system and commodities markets. natural resources are of central importance to canada ’ s economy and financial system, and nowhere is that more apparent than here in calgary. the development of these natural resources has been powering much of calgary ’ s – and canada ’ s – recent economic growth. natural resource industries – including farming, forestry, mining, oil and gas extraction and related industries – are a key element of the canadian economy, accounting for roughly one fifth of our gross domestic product. 1 that share is roughly twice the share of natural resource industries in the united states economy and higher than in most other advanced economies. 2 resources are an even more important feature of canada ’ s international trade, accounting for roughly half of our exports. we all have a strong stake, therefore, in ensuring that these resources are developed wisely and sustainably for the benefit of all canadians. doing that requires several elements : an appropriate policy environment, flexible labour markets and a reliable transportation network. it also requires a sound and efficient financial system that meets the needs of the resource economy. the financial system is connected to resource development in two main ways. first, it channels the financing needed to develop those resources. canada ’ s equity markets in particular are heavily weighted toward resources : the tsx venture exchange is one of the world ’ s primary listing destinations for resource firms, and even the toronto stock exchange is sometimes referred to as “ the world ’ s mining exchange. ” bank lending and other financing flows also play an important part. many of you are directly involved in some aspect of this financing. second, the financial system is linked with the commodities markets. here, i mean the intricate web of global markets in which commodities are bought and sold, prices determined, and the producers and end - users of commodities hedge against unexpected movements in those prices. these markets are very important in determining the returns that canadian producers earn for their output, as well as the risks they face. in my remarks today, i would like to address this second aspect :

in the system. it may get further help from easing commodity prices and growth returning in some parts of the globe. our concern on restructuring is more around the fairness of the process. it should address the problem, not merely postpone it. hence, rbi has set out clear guidelines that a second round of restructuring would lead to automatic classification of the asset as non - performing and call for a higher provisioning requirement. ii ) capital adequacy of banks 15. there have been numerous discussions on the need and ability of the indian banks to raise additional capital to support their business, going forward. i would not say that the concerns raised in this regard are entirely misplaced, especially for the public sector banks. the need to shore up capital adequacy would arise on account of pulls from several directions. these include need for higher provisioning requirements due to deterioration in asset quality, phased implementation of basel iii capital norms, capital required to cover additional risk areas under the risk based supervision framework as also the need to expand the business and meet the likelihood of higher credit demand going forward. let me tell you that at present, the capital position of indian banks is comfortable with all of them meeting the extant regulatory requirement comfortably. the capital to risk weighted assets ratio ( crar ) for indian banks under basel iii as at end march 2014 stood at a comfortable level of bis central bankers ’ speeches 12. 9 per cent. while the ratio for the psbs was lower at around 11. 38 per cent, the ratio in case of private sector and the foreign banks was in excess of 16 per cent. going ahead, the capital position of the banks, especially the psbs, is likely to come under some strain, both in terms of quantity and quality. to meet minimum capital requirements, capital buffers, domestically systemically important banks ( dsibs ) surcharge and impact of increased stressed assets, the government ’ s contribution to the equity up to march 31, 2019, would have to be to the tune of two lakh forty thousand crore rupees at the existing level of its shareholding in respective public sector banks. this requirement is independent of the risk based capital requirements which the banks might need under the rbs process. it is, however, important to note that this requirement may come down if, going forward, the asset quality improves on account of higher growth and consequently, higher internal retention. notwithstanding the room available to the banks to meet the basel iii timeline, the banks have