OTTAWA, March 13, 2020 /CNW/ - As part of a coordinated effort by federal agencies, OSFI has taken a number of actions that build resilience of federally regulated financial institutions and improve the stability of the Canadian financial system and economy in response to challenges posed by COVID-19 and current market conditions.
OSFI, market participants, and financial institutions all recognize the critical need for strong capital and liquidity and effective risk management. OSFI has strengthened its requirements and its supervisory efforts in all of these areas since the 2008 global financial crisis. These measures have improved the resilience of federally regulated financial institutions for periods of stress.
OSFI adjusts the Domestic Stability Buffer to support continued lending resilience
One of these requirements was the creation of the Domestic Stability Buffer (DSB) requirement for domestic systemically important banks (D-SIBs). The DSB's countercyclical design enables D-SIBs to use the capital they have built up during good times when it may be needed most.
Today the Office of the Superintendent of Financial Institutions is lowering the Domestic Stability Buffer by 1.25% of risk weighted assets, effective immediately. The DSB was set at 2.25% of risk weighted assets, effective as at April 30, 2020. With this announcement, the DSB requirement is now set at 1.00%.
This action is being taken in order to support D-SIBs' ability to supply credit to the economy during an expected period of disruption related to COVID-19 and market conditions. The release of the DSB will support in excess of $300B of additional lending capacity by D-SIBs. These institutions are encouraged to use this capital as well as their liquidity buffers if required.
Further, OSFI expects that banks will use the additional lending capacity to support Canadian businesses and households, and should not use this measure to increase distributions to shareholders or employees or to undertake share buybacks. Consistent with this, OSFI has today set the expectation for all federally regulated financial institutions that dividend increases and share buybacks should be halted for the time being.
Canada's banks have strong overall capital ratios and quality of capital. This resilience, combined with this announcement today will help banks continue to provide credit to Canadians through this period of economic disruption. Other jurisdictions have announced similar capital measures to support resilience of their institutions and economies.
We will continue to monitor institutions' usage of the buffer and there remains capacity to respond to further stresses. OSFI also commits that any increases to the buffer will not take effect for at least 18 months from today. OSFI will continue to assess the level of the DSB.
OSFI suspends consultation on the minimum qualifying rate for uninsured mortgages
In view of the current developments, OSFI is suspending all of its consultations and policy development on new or revised guidance until conditions stabilize. This includes the new proposed B-20 benchmark rate for uninsured mortgages. As a result, the benchmark rate as currently published by the Bank of Canada will remain in force until further notice.
The Minister of Finance has also announced the suspension of the April 6, 2020 coming into force of the new benchmark rate used to determine the minimum qualifying rate for insured mortgages.
OSFI is reviewing its supervisory and regulatory priorities to align with current conditions
OSFI is focusing its efforts on issues in the environment that require continued vigilance. OSFI is committed to being a risk based and agile regulator that calibrates responses that are fit for purpose. Consistent with this, OSFI will monitor the FRFIs' responses to this announcement as well as, capital, liquidity and operational capacity of institutions. We will reprioritize supervisory work as needed.
OSFI monitors the environment and regularly reviews its supervisory processes and regulatory expectations to ensure they remain risk focused, forward looking and aligned with current conditions.
OSFI continues to engage with domestic and international regulators to address uncertainties and promote coordination and stability.
OSFI encourages all Canadians to follow the advice of public health experts that can be found by visiting www.Canada.ca/coronavirus.
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.
SOURCE Office of the Superintendent of Financial Institutions
For further information: OSFI - Public Affairs: [email protected], 343-550-9373