OFSI designates largest banks ‘systemically important’

Canada’s Office of the Superintendent of Financial Institutions (OSFI) legally designated Canada’s six largest banks as “systemically important” on Tuesday and set guidelines for absorbing losses.

The designation comes as part of Canada’s bail-in regime after the 2008 financial crisis showed certain banks were “systemically important,” a background document says. The reforms are meant to ensure taxpayers aren’t on the hook for losses by requiring banks to hold additional capital.

A 2016 amendment to the Bank Act gave OSFI the authority to designate banks as domestic systemically important banks (D-SIBs) and to designate their total loss absorbing capacity (TLAC). OSFI ordered the six banks to set the minimum risk-based TLAC ratio at 21.5% of risk-weighted assets and the minimum TLAC leverage ratio at 6.75%, a release said.

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The framework lets a bank be recapitalized and remain operating without requiring taxpayer money or threatening financial stability in the “unlikely event of a failure,” the release said.

The banks designated as D-SIBs are the Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.