toxic. in the end, the old risk - based capital standards were both too weak and too porous. this proved fatal when banks ’ loss absorbency was called upon. bis central bankers ’ speeches building capital so it should be a surprise to no one that when building a more resilient system, the g - 20 started with strengthening the bank capital regime. with the new basel iii rules, the quantity and quality of bank capital are being improved immensely : • the minimum requirement for common equity will rise from 2 per cent to 4. 5 per cent under basel iii, and to 7 per cent when the new capital conservation buffer is added. this more than triples the required amount of high - quality capital. • a new countercyclical capital buffer will compel banks to further increase capital by up to 2. 5 percentage points if threats of system - wide disruptions are rising. • for those banks whose failure would pose a risk to the global financial system, even more capital will be required. by 2019, these institutions will face a capital surcharge that rises from 1 per cent to 2. 5 per cent of risk - weighted assets. in addition, the new rules will bring more exposures on balance sheets and require more capital against riskier activities ( e. g., trading activities and securitisations ). for example, capital required for the trading book will be tripled. the effective increase in capital is even larger once the tougher definition of capital is factored in. in total, the largest banks will have to hold at least seven times as much capital as before the crisis. while these measures are scheduled to be implemented over the next six years, banks are not waiting to rebuild confidence in their creditworthiness. since the end of 2007, major banks in the united states and europe have increased their common equity capital by $ 575 billion and their common equity capital ratios by 25 per cent. based on the new rules, the average capital ratio of internationally active banks at the beginning of this year already stood at 7. 7 per cent. 1 in general, the industry can meet the new targets through earnings retention over the transition period. for example, for all large banks to reach the basel iii tier 1 common equity target ratio by january 2019, they need to raise an amount about equal to their aggregate post - tax profits last year. canadian banks are setting the pace. since the end of 2007, the major canadian banks have increased their common equity capital by

understanding of the structure of the canadian economy, i can say that while the income trust structure may be very appropriate where firms need only to manage existing assets efficiently, it is definitely not appropriate in cases where innovation and new investment are key. to the extent that the system was favouring the use of the income trust structure in these cases, the incentives for innovation and investment were reduced, and the potential for future productivity growth was reduced. finally, members of the committee should realize that the different risk - return characteristics of income trusts may not enhance market completeness if they arise from differences in tax treatment. clearly, there has been a very significant tax incentive to use the income trust form of organization in cases where this would not have been the appropriate form of organization from a business efficiency point of view. by giving incentives that led to the inappropriate use of the income trust form of organization, the tax system was actually creating inefficiencies in capital markets, inefficiencies that, over time, would lead to lower levels of investment, output and productivity. while we at the bank have not done any research on how the rules of the tax system could be designed so that they do not give inappropriate incentives that would bias the choice of firms to operate either as an income trust or as a corporation, the changes proposed by the government last october would appear to substantially level the playing field. for the income trust sector to deliver efficiency benefits through the enhancement of market completeness, it's important that the tax system provide a level playing field.