Canadian banks rank among the most solvent in the world when it comes to capital levels. Now, with the world’s banks moving Canada’s way in terms of the amount of money lenders need to set aside for capital adequacy, regulators will need to decide whether they’ll want to get ahead of the competition by adopting even tougher standards.

Finance Minister Jim Flaherty, who regularly extols the virtues of Canada’s banking system as the world’s soundest, said Monday that he doesn’t have plans to prod lenders into having more capital than required under the new rules laid out in Basel, Switzerland, over the weekend, which won’t be fully in place until 2019.

“We’re comfortable with the progress that has been made” at Basel, Mr. Flaherty said.

But speaking to reporters at a news conference in Toronto on the opening of an institute that will study banking system risk, Mr. Flaherty said the government would impose additional regulations on mortgage lending if it believed financial institutions or large numbers of borrowers were taking imprudent risks.

“Canadians ought to be mindful, including on their residential mortgages, about how much risk they’re taking because interests rates over time inevitably are going to go up,” he predicted.

The international rules handed down from the governing body of the Basel Committee on Banking Supervision seek to address that sort of systemic risk by imposing capital levels that are already in line with those that Canadian banks have had under their regulator, the Office of the Superintendent of Financial Institutions.

Domestic banks, therefore, will have no trouble meeting the new global standards for how much money a financial institution needs to stash away as a rainy day fund.

Bankers are taking the new rules in stride.

Bank of Montreal’s chief risk officer, Tom Flynn, speaking at a conference in New York, said “BMO is well-positioned on both an absolute and relative basis to adopt the new rules.”

Janice Fukakusa, chief financial officer at Royal Bank of Canada, was also speaking in New York and said that “based on our first read, we’re encouraged by the announcement and feel very comfortable in meeting these standards within the established timelines, given where our capital ratios stand today.”

At Toronto-Dominion Bank, chief financial officer Colleen Johnston said: “We’re aware of the proposed new rules and we’re pleased to see progress made on this front. Increased clarity around capital rules will be good for all banks and for the overall economy.”

The question on many investors’ minds now is whether Canada needs to press home its advantage by further tightening the rules to ensure that even stronger balance sheets become the new normal here.

“The Basel rules always were the floor,” observed Desjardins Securities bank analyst Michael Goldberg.

The banks themselves, Mr. Goldberg said, may even want the extra cushion, and even lard on more capital, above and beyond anything new the OSFI imposes. Bankers, he says, never want to “get a phone call from the OSFI saying ‘We’re concerned.’ ”

Mr. Goldberg, writing to clients Monday, said the new rules “present no problems” for banks. He estimated domestic lenders have tangible common equity, or the amount of rainy-day money shareholders have to handle loan losses, ranging from about 8.5 per cent to 10.4 per cent of assets, more than double the minimums the Basel rules will require in 2013.

In the short term, Mr. Goldberg said he believes the rules will mean “a likely pick-up in acquisition activity or share buybacks by Canadian banks.”

He flagged Royal Bank, TD and Bank of Nova Scotia as the financials most likely to focus on acquisitions, while he tapped Canadian Imperial Bank of Commerce as the bank most likely to be focused on share buybacks. National Bank of Canada, he said, is likely to do both.

Brian Klock, analyst at Keefe Bruyette & Woods, said he expects big Canadian banks, such as RBC and TD, to begin increasing dividends after their first-quarter 2011 earnings reports in February, in response to the clarity on the new capital rules.

With the capital question settled, the debate over acquisitions by Canadian banks has resumed.

Mr. Klock said TD “may not be out doing more deals until later in 2011” as it digests recent U.S. acquisitions.

There is frequently speculation that TD may take a run at E-Trade Financial, to add to its U.S. discount brokerage operation. Bank of Nova Scotia might be interested bidding for the rest of 37-per-cent-owned CI Financial.

Analysts are divided about what RBC might do. The bank is active in the U.S. Southeast, but doesn’t have the size to be a major competitive force in the region. But Mr. Klock believes it will first try to expand its wealth management business in Europe rather than go after a regional U.S. bank.