The Office of the Superintendent of Financial Institutions (OSFI) has announced measures intended to support federally regulated financial institutions (FRFIs) and improve the stability of the Canadian economy and financial system in response to challenges posed by the COVID-19 pandemic and current market conditions:
- Domestic Stability Buffer set to 1.00% of risk weighted assets. Originally, the Domestic Stability Buffer (DSB) was set at 2.25% of risk weighted assets to take effect on April 30, 2020. In response to current market conditions and the COVID-19 pandemic, effective immediately, OSFI has lowered the DSB by 1.25% of risk weighted assets in an attempt to support the ability of domestic systemically important banks (D-SIBs) to supply credit to the economy. The measure is expected to provide in excess of $300B of additional lending capacity by the D-SIBs, to be used to support Canadian businesses and households. In addition, OSFI expects that all FRFIs halt their dividend increases and share buybacks for the time being, and discourages the use of this additional lending capacity as increased distributions to shareholders or employees or for share buybacks.
- Uninsured mortgages. OSFI announced that all consultations and policy development are suspended, including consultations on the new minimum qualifying rate for uninsured mortgages originally set to come into force on April 6, 2020. The current benchmark rate, as published by the Bank of Canada, will instead remain in force until further notice.
OSFI also announced that it will monitor the FRFIs’ response to the announcement as well as the capital, liquidity and operational capacity of such institutions.
Should you have any questions on the measures listed above and what they mean for you, do not hesitate to contact our team.
The author would like to thank Alexandra David, articling student, for her contribution to this legal update.