The outgoing head of Canada's most international bank said Thursday in a speech that called on banks to take on more responsibility for lending risks, or for regulators to ease up on rules that are designed to prevent another massive failure of a financial institution.
Contrary to some people's beliefs, banks need to take on "a certain level" of risk to help the global economy, Waugh said.
"We have to take risk," he added in a media conference after his speech to the Economic Club of Canada.
"You're not performing your function in society and in the financial sectors if you don't."
Capital levels at Canadian banks are widely considered to be stronger than most of their international peers, under the new Basel III rules which set out key measures of a bank's health and ability to endure future economic downturns.
Basel III came in response to the financial crisis in 2007 and 2008, but the more strict regulations caused many of the world's biggest banks to drastically change the way they operate, and increase capital requirements.
"No amount of capital can save a poor bank," Waugh countered. "(It takes) good management, risk assets and liquidity."
He pointed to the failure of Lehman Brothers that went bankrupt even though it passed the leverage ratios that were required, which he said suggests a failure in risk management, rather than in regulation.
"If you had regulated, I don't think whatever rule they would've had at the time — or the rules they have today — would've necessarily caught it," Waugh said.
Waugh acknowledged that asking regulators to take a step back won't happen overnight, but he hopes his message gets to political leaders.
"Somebody's got to take the longer view," he said.
"We've got to get this dialogue (to) the policysetters and then the regulators will act accordingly."
In his speech, Waugh said that regulations are having a "transformational effect" on the industry that eclipses any of the existing market forces because some institutions are being forced to sell off assets they can't handle or exit some countries.
Scotiabank has benefited from this shift by acquiring companies such as E*Trade, Dundee Wealth, ING Direct and businesses at other international financial institutions, he said.
But the regulatory changes also come at a price for the international financial community.
"As banks decide to exit markets, it means less choice, reduced competition, less liquidity and higher funding costs for businesses and consumers," he said.
Waugh plans to retire in November, and will be replaced by Brian Porter, currently the bank's president.