Canada’s 2013 Economic Action Plan Creates Bank Bail-Ins

For those in the know, or for those who are not.  Time is running short.

Jobs Growth Prosperity Economic Action Plan 2013

Chapter 3.2

Streamlining Conflict of Interest Provisions  

The Government will examine whether the conflict of interest provisions contained in the financial sector statutes remain consistent with the overall Government policy as outlined in the Conflict of Interest Act.

To ensure the continued strong governance and oversight of federally regulated financial institutions, the Government will examine whether the conflict of interest provisions contained in the financial sector statutes remain consistent with overall Government policy as outlined in the Conflict of Interest Act.

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.‖

Supporting the Financial Sector’s Contribution to the Economy

Supporting International Growth of the Canadian Financial Sector

Economic Action Plan 2013 will enhance the Government’s support for the strategic international expansion of Canadian financial institutions.

The Government will enhance its activities aimed at promoting the Canadian financial sector internationally. As part of the Government’s efforts to intensify Canada’s pursuit of new and deeper trade relationships, it will partner with financial institutions to promote the Canadian brand with key decision makers in foreign markets. Strategic expansion of Canadian financial institutions internationally will create skilled financial sector jobs in Canada and allow the industry to increase its contribution to the Canadian economy.page155image8084

ECONOMIC ACTION PLAN 2013 – page 145

http://www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf

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