The Global Risk Institute (GRI) recently hosted a members-only webinar with Jamey Hubbs, Assistant Superintendent, Deposit-taking Supervision Sector, Office of the Superintendent of Financial Institutions (OSFI). Mr. Hubbs is responsible for supervising more than 150 deposit-taking institutions in Canada.

Sonia Baxendale, the GRI’s Chief Executive Officer, moderated the event and asked Mr. Hubbs a number of questions and started with the recent changes in guidance for financial institutions and have those changes had the desired impact.

“We have learned that we were effective when we acted quickly and explained clearly to stakeholders what we are doing and why,” noted Mr. Hubbs.

OSFI will ensure its measures are aligned with newly introduced programs from the government. Mr. Hubbs noted it would be counter-productive for the Bank of Canada to introduce a new liquidity facility and for OSFI to fail to recognize that facility in its liquidity adequacy requirements.

OSFI will also ensure that any adjustments in policy adhere to four established criteria. First: adjustments have to be credible and preserve the integrity of the regulatory framework and align with international standards. Second: any measure needs to be consistent and can be applied in the same way across comparable institutions. Third: any measure needs to be necessary, and are not made unless other reasonable alternatives could not, or should not, be used. Fourth: any changes should make capital equity measures more accurate, avoid obscuring the situation and can be phased out when no longer warranted.

“OSFI is seeing the intended consequences in the early stages and will monitor the situation,” added Mr. Hubbs.

This crisis did not originate within the financial services sector as it did in 2008. The pandemic is different because it is a health event that has flowed into the real economy and then the financial services sector. Canada has had stress periods that originated in the real economy that moved into the financial services sector. The past oil shocks would be an example.

The stay-at-home order for non-essential workers is unique to this situation and it has introduced some operational risks. Mr. Hubbs said they are trying to imagine what an OSFI on-site review will look like when there is no site per se. He noted that it is always beneficial see how other jurisdictions are looking at the situation, and how they are interpreting it, and OSFI is doing just that.

“We don’t have a monopoly on good ideas so we want to get that diversity of perspective,” added Mr. Hubbs.

A viewer of the webcast asked what is keeping Mr. Hubbs up at night. “If we have a protracted distributed workforce,” noted Mr. Hubbs, “how can OSFI continue to have an effective supervisory program that identifies gaps in order to fulfill our mandate in the interest of depositors.”

Mr. Hubbs noted that it is premature to talk about future policy gaps because there will be gaps as Canada moves into the new normal. Canada’s financial institutions have developed robust risk appetite frameworks that helped OSFI determine where it should focus its efforts.

The topic of guidance to banks on dividends prompted Mr. Hubbs to respond that share buy backs are halted and there will be no dividend increases for the time being. He noted that OSFI expects financial institutions to be forward looking in their capital planning and they will need to operate under the current capital requirement regimes.

He also noted that the Domestic Stability Buffer was decreased in March and it will not be increased until at least September 2021. “It was meant to be increased in good times and reduced in bad times,” said Mr. Hubbs. “We have flexibility in the future and we will be transparent in the use of buffers.”

Mr. Hubbs concluded by saying that just as the international bodies have had a lot of dialogue during the pandemic there has been increased dialogue within Canada’s regulatory framework.