Featured Product

    Superintendent of OSFI Speaks on Covered Bonds Framework in Canada

    April 18, 2018

    The OSFI Superintendent Jeremy Rudin addressed the European Covered Bond Council about the role of OSFI in supporting the integrity of the covered bonds framework in Canada. He highlighted that the issuance of covered bonds can help diversify a bank’s funding sources, making the bank more resilient in times of stress.

    Mr. Rudin explained that issuing covered bonds can significantly diversify a bank’s sources of funding, as these instruments differ from both bank senior debt and securitized assets in ways that can be quite important to investors. Canadian banks only began issuing covered bonds in 2007. Since issuing the first Canadian covered bond, total issuance has exceeded USD 200 billion and the level of outstanding debt has been steadily increasing. He emphasized that providing a legislative framework for covered bonds would further diversify the investor pool, as some investors choose, or are required, to hold only the covered bonds that are issued under a legislative regime. Moreover, there was a risk that relying on an untested contractual approach would make it less likely that funding would be available when most needed, in times of stress. The Canadian legal framework increased resilience by providing statutory protection for investors, enhancing disclosure requirements, and prescribing both eligible issuers and cover pool collateral. Under this framework, the national housing agency, Canada Mortgage and Housing Corporation, takes the lead role in administering the framework and maintaining a covered bond registry.

    He also mentioned that OSFI supports the integrity of the covered bond framework in three ways. The first element is the broad supervision of the issuers. Currently, there are seven covered bond issuers in Canada. These issuers are subject to more intense supervisory scrutiny, higher capital requirements, stricter recovery and resolution planning requirements, and enhanced disclosure requirements. The second element is the prudential limit on the amount of covered bonds each bank can issue. Mr. Rudin mentioned that covered bonds can contribute to financial stability; however, this benefit can be undermined if the issuer sells too many covered bonds. To ensure that the financial stability benefits of covered bonds are not dissipated by excessive issuance, OSFI has applied a cap on issuance of 4% of a bank’s total assets. The third element, according him, is the cover pool assets and the role of OSFI in supervising the underwriting standards used by issuing banks. OSFI plays an important role in ensuring the soundness of the cover assets through the close supervisory scrutiny of mortgage underwriting standards in Canada. In conclusion, he highlighted that OSFI realizes the contribution that covered bonds can make to the overall stability of the banking system and will continue to support the integrity of the covered bonds framework in Canada.


    Related Link: Speech

    Keywords: Americas, Canada, Banking, Covered Bonds, Financial Stability, Mortgage Underwriting, OSFI

    Related Articles

    PRA Publishes Q&A on Property Valuation Requirements Under CRR

    PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.

    May 29, 2020 WebPage Regulatory News

    EBA Publishes Guidelines on Loan Origination and Monitoring

    EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations.

    May 29, 2020 WebPage Regulatory News

    EBA Proposes Revised Standards for Own Funds and Eligible Liabilities

    EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.

    May 29, 2020 WebPage Regulatory News

    EBA Sets Out Supervisory Convergence Plan for 2020

    EBA published a report on convergence of supervisory practices in 2019.

    May 29, 2020 WebPage Regulatory News
    News

    IOSCO Consults on Outsourcing Principles for Operational Resilience

    IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.

    May 28, 2020 WebPage Regulatory News
    News

    MAS Consortium to Develop AI Fairness Metrics for Credit Scoring

    MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.

    May 28, 2020 WebPage Regulatory News

    BoE Updates Definitions for BTL Data Collection

    BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.

    May 28, 2020 WebPage Regulatory News
    News

    FSI Examines Financial Stability Implications of Payment Deferrals

    FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.

    May 28, 2020 WebPage Regulatory News
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    PRA Finalizes Policy on Prudent Person Principle Under Solvency II

    PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.

    May 27, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5234