At close of business on March 13, 2020, the Office of the Superintendent of Financial Institutions (OSFI), Canada's prudential regulator, announced several actions to support the stability of the Canadian financial system in response to challenges posed by COVID-19:
- OSFI is lowering the domestic stability buffer applicable to Canada's six systemically important banks from 2.25 per cent to one per cent to enable these institutions to supply additional credit to the economy. OSFI estimates that this measure will support over C$300-billion of additional lending capacity and "encourages" the banks to use this capital, and their liquidity buffers, if needed. OSFI commits not to increase the buffer for at least 18 months.
- All federally regulated financial institutions are expected to halt dividend increases and share buybacks until further notice from OSFI. It is likewise OSFI's expectation that the additional capital available through the lowered domestic buffer should not be used to increase distributions to shareholders or employees or to undertake share buybacks.
- OSFI is also suspending all policy development and consultations on new or revised guidance. This includes the new proposed benchmark rate under Residential Mortgage Underwriting Practices and Procedures Guideline (B-20) for uninsured mortgages. As such, the benchmark rate currently published by the Bank of Canada will for now remain in force. The Minister of Finance also announced that he will suspend the new benchmark rate used to determine the minimum qualifying rate for insured mortgages, which was expected to take effect on April 6, 2020.
All of OSFI's announced actions take effect immediately. Blakes Financial Services Group is closely monitoring actions taken by OSFI and other Canadian regulators and will issue additional updates as necessary.
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