THUNDER BAY – MONEY – Finance Minister Joe Oliver today launched a public consultation on a key element of the Government’s comprehensive risk management framework for Canada’s domestic systemically important banks. The proposed regime is aimed at ensuring:
- that taxpayers are protected from having to bail out a systemically important bank in the highly unlikely event of such an institution running into difficulty; and,
- that Canada’s financial system remains strong by clarifying that banks’ shareholders and creditors are responsible for bearing losses, thereby giving them stronger incentives to monitor the bank’s risk-taking activities.
Canada’s banking system has been recognized for six consecutive years as the world’s strongest by the World Economic Forum. The proposed measures will make the Canadian financial system even more stable and resilient. They are part of an effort agreed to by Group of 20 (G-20) leaders in response to the recent global financial crisis and have been or will be implemented in other key jurisdictions.
The Government’s comprehensive risk management framework seeks to keep Canada’s financial system strong by reducing the likelihood that an institution would fail. In the highly unlikely event of a bank no longer being viable, the proposed Taxpayer Protection and Bank Recapitalization regime would help ensure bank shareholders and creditors bear losses, rather than taxpayers.
Once the new measures are in place, it will be possible to increase the capital of a major bank that has failed by quickly converting some of its liabilities (such as bonds sold to investors) into regulatory capital (like common stock). This conversion would be accompanied by other actions with the aim of making the bank viable and thereby ensuring Canada’s financial system remains strong and stable.
The proposed regime focuses on a specific range of liabilities and excludes deposits. In addition, insured deposits will continue to be guaranteed by the Canada Deposit Insurance Corporation.
Comments on the attached draft consultation paper can be submitted to the Department of Finance at ConsultationsFSS-SSF@fin.gc.ca or to the address below. The closing date for comments is September 12.