Federal banking regulators have asked banks not to issue novel securities until they have resolved their policy concerns about such a step.

In a letter to all deposit-taking institutions, the Office of the Superintendent of Financial Institutions reports that it has been approached by various banks regarding the potential for the issuance of bonds collateralized by the bank’s assets, also referred to as covered bonds.

“We are aware that the market for covered bonds has grown in Europe where these instruments were originally developed to help support a public policy objective through the development of a longer-term fixed-rate mortgage market,” the letter says.

However, the letter indicates that it isn’t ready to sign off on the development of such bonds here just yet. “OSFI is of the view that the issuance of such instruments raises precedential issues due to their potential to create a preferred class of depositor,” it says. “As such, OSFI expects Canadian DTIs to refrain from issuing such instruments until OSFI’s regulatory and policy concerns have been resolved.”