{"id":228265,"date":"2025-09-15T08:26:12","date_gmt":"2025-09-15T08:26:12","guid":{"rendered":"https:\/\/www.europesays.com\/us\/228265\/"},"modified":"2025-09-15T08:26:12","modified_gmt":"2025-09-15T08:26:12","slug":"as-recession-and-stagnation-loom-canadas-financial-regulator-finally-gets-it","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/228265\/","title":{"rendered":"As recession and stagnation loom, Canada\u2019s financial regulator finally gets it"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Peter Routledge, Canada\u2019s top bank and insurance regulator, in Toronto’s PATH system, in January, 2020. Mr. Routledge was appointed Superintendent of Financial Institutions in June, 2021.Fred Lum\/The Globe and Mail<\/p>\n

John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.<\/p>\n

When Tiff Macklem, the Governor of the Bank of Canada, speaks, Canadians listen. The Bank of Canada\u2019s interest rate decisions<\/a> reflect the common language of economic fear and opportunity. When Peter Routledge, Canada\u2019s top bank and insurance regulator, speaks, Canadians scratch their heads.<\/p>\n

The decisions made by Mr. Routledge, who leads the Office of the Superintendent of Financial Institutions, or OSFI, affect the economic well-being of Canadians but are cloaked in terms such as liquidity coverage ratios, risk-weighted assets, Monte Carlo simulations, and capital adequacy requirement guidelines. All are meaningless to most Canadians and parliamentarians, too.<\/p>\n

Behind the language barrier is the power to materially influence Canada\u2019s financial system and its ability to support business development. A century ago, when government bank inspection was launched in Canada, the objective was to ensure banks followed the Bank Act. Today, it has evolved into a system of regulatory paternalism that attempts to manage risk for banks and insurance firms and, in the process, has left Canada less prepared for the hard economic times ahead.<\/p>\n

Those times are the outcome of a shopping list of inadequacies<\/a> that have dragged down Canada\u2019s potential for years \u2013 taxes that punish business, poor productivity, meagre business investment, and the list goes on, with the added strain of a trade war initiated by U.S. President Donald Trump<\/a>.<\/p>\n

Regulator plans changes to encourage business lending by banks in support of economy<\/a><\/p>\n

John Turley-Ewart: Canadian banks are strong. Their regulators are not<\/a><\/p>\n

Of them all, it is the tariffs<\/a> imposed by Mr. Trump that, Mr. Routledge said<\/a> at a recent conference, \u201cwoke us up.\u201d What the head of OSFI woke up to was the reality that OSFI has been preparing for the last financial war \u2013 a replay of the 2007-08 financial crisis, when Canada escaped relatively unscathed, rather than the one before us, which needs a financial system that can better support economic growth and employment when both are trending in the wrong direction.<\/p>\n

\u201cResiliency\u201d is one of Mr. Routledge\u2019s favourite words. He salts his speeches generously with it and used it 10 times in his official conference remarks<\/a>. It is not a bad word; resiliency, the ability to adapt and recover from financial difficulties, is a good thing, and something Canadian banks proved capable of in 2007-08.<\/p>\n

But \u201cresiliency\u201d to OSFI means something else. Rather than leave banks and insurance firms to manage financial risk (to do their job) within regulatory guidelines, OSFI likes to manage it for them in some instances by rigging the regulatory system against segments of the Canadian market deemed by OSFI to be too risky.<\/p>\n

For insurance firms, this has meant rules discouraging investments in large infrastructure projects. For banks, OSFI has targeted business loans. It accomplishes this by adopting new or tweaking existing regulations that require high cash reserves against such loans and undertakings, making them uneconomic.<\/p>\n

In the case of banks, the result, as pointed out last week<\/a> in these pages, is the proportion of commercial lending in bank loan portfolios dropping from roughly 60 per cent in 1982 to approximately 25 per cent today.<\/p>\n

If your business, be it a small, medium or large corporation, couldn\u2019t find a bank to lend it money in recent years, OSFI likely had a role in that outcome.<\/p>\n

Now, OSFI is trying to make up lost ground as Canada faces a growing economic crisis. In July, it started with insurance companies by lowering their capital requirements (cash reserves) when investing in Canadian infrastructure projects in an effort to now incentivize such investments.<\/p>\n

This fall, it is the banks\u2019 turn, and OSFI is expected to make regulatory changes that will incentivize them to expand their Canadian commercial loan portfolios. \u201cMaybe a bit more commercial exposure would be good not only for the banks, but good for the country as we adapt our economic model,\u201d Mr. Routledge said at the conference.<\/p>\n

No doubt bankers will go through the motions with OSFI, but the last thing bankers do when dealing with an economy teetering on recession and a possible period of stagnation caused by a trade war is rush to open their commercial loan books. If OSFI has doubts, it can refer to this year\u2019s Bank of Canada Financial Stability Report <\/a> that predicts \u201csignificant losses\u201d related to business loans if such an economic scenario plays out.<\/p>\n

For years, OSFI has tried to save Canadians from financial loss by telling banks and insurance companies where they can and cannot invest using regulatory incentives and disincentives. What Canadians may come to realize in the months and years ahead is that they needed saving from OSFI rather than the banks and insurance companies it supervises.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Peter Routledge, Canada\u2019s top bank and insurance regulator, in Toronto’s PATH system, in…\n","protected":false},"author":3,"featured_media":228266,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[2148,2138,671,104,2132,692,64,2147,2131,2143,2144,2140,2133,2130,79,407,746,2142,2137,2159,2134,2135,454,2139,1165,728,2149,108,2154,2155,2157,2152,2156,2150,2153,2136,85,2146,80,2145,2151,1458,158,1164,2141,67,132,68,1154,107,2158],"class_list":{"0":"post-228265","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-business","15":"tag-canada","16":"tag-canada-news","17":"tag-canada-sports","18":"tag-canada-sports-news","19":"tag-canada-trafficcanada-weather","20":"tag-canadian-breaking-news","21":"tag-canadian-news","22":"tag-economy","23":"tag-education","24":"tag-environment","25":"tag-federal-government","26":"tag-foreign-news","27":"tag-globe-and-mail","28":"tag-globe-and-mail-breaking-news","29":"tag-globe-and-mail-canada-news","30":"tag-government","31":"tag-life-news","32":"tag-lifestyle","33":"tag-local-news","34":"tag-manitoba","35":"tag-national-news","36":"tag-new-brunswick","37":"tag-newfoundland-and-labrador","38":"tag-northwest-territories","39":"tag-nova-scotia","40":"tag-nunavut","41":"tag-ontario","42":"tag-pei","43":"tag-photos","44":"tag-political-news","45":"tag-political-opinion","46":"tag-politics","47":"tag-politics-news","48":"tag-quebec","49":"tag-sports-news","50":"tag-technology","51":"tag-travel","52":"tag-trudeau","53":"tag-united-states","54":"tag-unitedstates","55":"tag-us","56":"tag-us-news","57":"tag-world-news","58":"tag-yukon"},"share_on_mastodon":{"url":"","error":"Validation failed: Text character limit of 500 exceeded"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/228265","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=228265"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/228265\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/228266"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=228265"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=228265"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=228265"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}