OSFI will let leverage relief expire

Amid a return to more normal financial market conditions, Canadian banking regulators are allowing a relief measure adopted in response to pandemic-related uncertainty to expire.

The Office of the Superintendent of Financial Institutions (OSFI) confirmed today that it will not be extending temporary relief that was introduced back in April 2020 — allowing banks to exclude sovereign-issued securities from their leverage ratio calculations — past the end of the year.

“When OSFI introduced this special treatment of leverage ratio exposure measures in the spring of 2020, it was the appropriate response at the time to the uncertainty created by the pandemic,” said Ben Gully, OSFI’s assistant superintendent, regulation sector, in a statement.

“Now that this uncertainty has diminished, conditions warrant unwinding certain elements of this relief measure, which were always intended to be temporary,” he added.

When OSFI excluded sovereign securities from the leverage ratio, it also allowed banks to exclude central bank reserves from those calculations. Both provisions were extended in November last year.

Today, OSFI said that central bank reserves will continue to be excluded, and that it will “closely monitor conditions” and be ready “to take any further action, including the unwinding of other temporary measures, as required.”

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