Establishing a Risk Management Framework for Domestic
Systemically Important Banks
Economic Action Plan 2013 will implement a comprehensive risk
management framework for Canada’s systemically important banks.
Canada’s large banks are a source of strength for the Canadian economy. Our large banks have become increasingly successful in international markets, creating jobs at home.
The Government also recognizes the need to manage the risks associated with systemically important banks
—those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of
taxpayer funds, in the unlikely event that one becomes non-viable.The Government intends to implement a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, and will work alongside the existing Canadian regulatory capital regime. The risk management framework will include the following elements:
Systemically important banks will face a higher capital requirement, as determined by the Superintendent of Financial Institutions.
The Government proposes to implement a “bail-in” regime for
systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.
Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.
This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are “too big to fail.”