The federal government’s 2017 budget adds a little meat to the bones to reforms aimed at bolstering financial services sector stability that have been in the works since the global financial crisis, including measures to curb the threat of taxpayer bailouts for critical components of the financial system.<\/p>\n
The budget promises legislative work in several areas designed to enhance financial services sector stability, including the ongoing effort to establish a “bail-in” regime for big banks; to adopt a framework for resolving certain essential elements of financial market infrastructure (such as clearing and settlement firms); and to modernize the deposit insurance system.<\/p>\n
“These changes will further protect consumers and financial stability in the unlikely event of the failure of a financial institution,” the government says in the budget document.<\/p>\n
In terms of the framework for dealing with a failing bank, the budget indicates that the government will propose legislation to formally designate the Canada Deposit Insurance Corp. (CDIC) as the resolution authority for banks and require banks to develop resolution plans.<\/p>\n
The budget also promises amendments to reinforce the authority of the federal banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), to set loss-absorbency requirements for the big banks and to clarify the treatment of derivatives in the resolution process.<\/p>\n
Although the measures announced on Wednesday would contribute to the creation of a bank “bail-in” regime, this is an ongoing process; legislation to introduce new “bail in” powers was passed last year and the rules required to implement that framework are still required.<\/p>\n
At the same time, the budget also indicates that the government will introduce legislative amendments to bolster the Bank of Canada’s oversight of so-called financial market infrastructure (FMI) firms, such as payment and clearing and settlement organizations. The prospect of failure in a critical component of the plumbing of the global financial system has also been a priority for global policymakers since the global financial crisis.<\/p>\n
Read: Budget 2017<\/a><\/strong><\/p>\n
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