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OSFI, Department of Finance and Bank of Canada take Measures Applicable to Financial Institutions in Canada in the Face of COVID-19

Coordinated Measures

The federal Office of the Superintendent of Financial Institutions (OSFI), the Department of Finance Canada and the Bank of Canada have coordinated a number of measures to support the resilience of the Canadian financial system in a time of economic uncertainty and disruption due to COVID-19.  This reinforces the approach and stimulus-style proposals of the Government of Canada from March 18, 2020, including tax deferrals, wage subsidies, and direct supports.  See Canada’s COVID-19 Economic Response Plan: Support for Canadians and Businesses

OSFI lowered Domestic Stability Buffer

In response to COVID-19 and current market conditions, OSFI has lowered the Domestic Stability Buffer (DSB) for domestic systemically important banks (D-SIBs – see next paragraph) which supports in excess of $300 billion of additional lending capacity for D-SIBs. The decrease of the DSB was in the amount of 1.25% of risk weighted assets of the applicable D-SIB.  See OSFI Measures to Support Resilience of Financial Institutions

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

Effective March 13, 2020, the DSB is 1.00% of risk weighted assets (rather than 2.25% of risk weighted assets OSFI had set earlier, which was to be effective as at April 30, 2020). The DSB’s countercyclical design enables D-SIBs to use when most needed the capital that they built up in good times. OSFI expects banks to use additional lending capacity to support Canadian businesses and households.

OSFI suspending Consultations on Regulatory Matters and coming into force of Benchmark Rate for Uninsured Mortgages

OSFI will suspend all consultations on regulatory matters - including on the proposed new Benchmark Rate for the minimum qualifying rate for uninsured mortgages - until conditions stabilize. Accordingly, the government is suspending the coming into force of the new Benchmark Rate for the minimum qualifying rate for insured mortgages until further notice.  OSFI had been expected to release in the near future a number of consultation papers and updated guidelines. See OSFI announces measures to support the resilience of financial institutions

Department of Finance Canada Establishing Business Credit Availability Program

The Canadian government is establishing a Business Credit Availability Program (BCAP) to further support financing in the private sector through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC). Under this program, BDC and EDC will enhance their cooperation with private sector lenders to provide more than $10 billion of additional support to businesses.  Credit available to farmers and the agri-food sector will also be increased through Farm Credit Canada. See Canada’s COVID-19 Economic Response Plan: Support for Canadians and Businesses

Bank of Canada Providing Bankers’ Acceptance Purchase Facility

The Bank of Canada is providing a new Bankers’ Acceptance Purchase Facility to support  funding for small- and medium-size businesses when they may have increased funding needs and credit conditions are tightening. For details on this and the additional measures announced by the Bank of Canada to strengthen the resilience of the Canadian financial system, see the Bank of Canada Statement

Bank of Canada Broadening Bond Buyback Program and Supporting Interbank Funding

To add market liquidity, the Bank of Canada last week cut its interest rate to 0.75%, is broadening the scope of the Government of Canada bond buyback program and has stated that it is committed to proactively support interbank funding by temporarily adding new Term Repo operations with terms of 6 and 12 months, in addition to its regular 1-month and 3-month Term Repo operations.  See Bank of Canada Announces the Expansion of its Bond Buyback Program and Term Repo Operations

Bank of Canada Launching Standing Term Liquidity Facility

The Bank of Canada intends to launch the Standing Term Liquidity Facility (STLF) in the coming weeks. The STLF (which was announced in November 2019) is intended to complement the tools the Bank of Canada currently has to provide liquidity and will strengthen the Bank of Canada’s efforts to enhance the resilience of the Canadian financial system. Under the STLF, the Bank of Canada could provide loans to eligible financial institutions for temporary liquidity support where the Bank of Canada has no concerns about their financial soundness.  For background on the STLF, see Information on the Standing Term Liquidity Facility

The Bank of Canada announced a change to the STLF, which would allow certain financial institutions to temporarily assign to the Bank an additional portion of their non-mortgage loan portfolio and give institutions greater flexibility in managing their collateral.  In addition, the Bank of Canada is increasing the target for the minimum daily level of settlement balances from $250 million to $1.0 billion. See Temporary Changes to the Bank of Canada’s Standing Liquidity Facility (SLF) Collateral Policy Regarding the Non-Mortgage Loan Portfolio (NMLP) and Settlement Balances

Canada Mortgage and Housing Corporation to Purchase Insured Mortgage Pools

The Canada Mortgage and Housing Corporation (CMHC) will be launching an Insured Mortgage Purchase Program (IMPP).  Through the IMPP, CMHC will purchase from mortgage lenders up to $50 billion of insured mortgage pools, which is designed to provide further liquidity to lenders by taking these loans off of their books.  Details of the terms of these purchases are expected to be provided to lenders later this week. See Government of Canada Announces Further Measures to Support Continued Lending to Canadian Consumers and Businesses