OSFI is proposing changes to address Canadian banks' liquidity risks

Regulator says changes reflect ‘heightened risks’ in the financial system

OSFI is proposing changes to address Canadian banks' liquidity risks
Steve Randall

Canadian banks could see new requirements to ensure strong levels of liquidity under new regulatory proposals.

The Office of the Superintendent of Financial Institutions (OSFI) is asking stakeholders to give feedback over the next few months on measures to bolster the regulator’s monitoring of banks’ liquidity.

OSFI’s Liquidity Adequacy Requirements (LAR) Guideline helps the regulator assess whether banks have adequate liquidity, and it is proposing changes to its intraday liquidity monitoring tools, new reporting requirements (two new monthly returns that federally regulated institutions will have to submit), and updates to the treatment of the short-term credit investments known as Bankers' Acceptances in funding measurements.

“Heightened risks in the financial system have highlighted the importance of monitoring intraday liquidity,” said Peter Routledge, Superintendent of Financial Institutions. “Consistent with our approach to principles-based regulation, we are consulting with federally regulated financial institutions on proposed changes to our LAR guideline. We believe the changes will add to the resilience of Canada's financial system.

Guidance on intraday liquidity monitoring has been in place since 2015 and is consistent with the international Basel Committee on Banking Supervision’s (BCBS) Basel III reforms. The risk occurs if a bank cannot a payment obligation at the time expected, which affects its own liquidity level and that of other third parties.

OSFI recently published its Annual Risk Outlook for 2024-2025 which highlighted four key risks, including liquidity and funding along with real estate secured lending and mortgage risks, wholesale credit risks and integrity, security, and foreign interference.

The consultation is open now and until August 30, 2024. Comments can be submitted to [email protected]