Covered bonds in Canada – an increased regulatory stance

The Office of the Superintendent of Financial Institutions (OSFI), the federal financial institutions prudential regulator, recently addressed the issue of a cap on issuance of covered bonds which presently stands at 4% of a bank’s total assets. OSFI is now taking a hard look at this limit and is doing so in the context of its expectations on a bank’s overall management of asset encumbrance.  The Superintendent of Financial Institutions has stated that any revision must encourage banks to maintain enough unencumbered, high quality assets when times are good to be able to meet both higher collateral requirements and broader funding needs, if times turn sour. Covered bonds are debt securities issued by a financial institution which are collateralized against a pool of assets that are meant to cover claims should an issuer fail. This subject has attracted prudential oversight in Canada, particularly given its benefits. One such is that covered bonds continue as…

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