Government of Canada
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Federally Regulated Financial Institutions

RISK ASSESSMENT AND INTERVENTION

OSFI supervises federally regulated financial institutions (FRFIs), monitors the financial and economic environment to identify issues that may impact these institutions negatively, and intervenes in a timely manner to protect depositors and policyholders from undue loss, while recognizing that management, boards of directors and plan administrators are ultimately responsible, and that financial institutions and plans can fail.

Throughout 2009–2010, OSFI continued the heightened level of monitoring and scrutiny of financial institutions and markets exercised in the prior year, while taking into account clear evidence of economic recovery and a decline in volatility and uncertainty in financial markets. We enhanced risk identification activities, strengthened the design and application of supervisory processes, targeted cross-sector reviews in areas identified as high risk, and introduced organizational changes to focus our resources better.

Financial Environment

The functioning of liquidity and credit markets has improved since the global financial crisis intensified at the end of 2008. Policy makers around the world have acted vigorously to restore confidence in the global financial system and promote the flow of credit but significant risks remain. The strength of the Canadian financial regulatory and supervisory framework helped our banking system weather the storm better than many global counterparts, as noted by the International Monetary Fund in its 2009 assessment of member countries. As 2009–2010 came to a close, key economic indicators in Canada pointed to recovery. Generally, the Canadian economy was less exposed to the crisis because private and public sector balance sheets were in better shape than in most countries. In addition, Canadian financial institutions benefited from relatively conservative lending and maintaining higher levels of capital.

A number of factors contributed to the global financial crisis, including weaknesses in macroeconomic policy and financial regulation, and a general mispricing of risk. The consequences were far-reaching and, while they have been mitigated, continue to affect countries and financial institutions world-wide. Policy makers around the globe are considering proposals to reduce the risk of future financial crises. There has been substantial work examining such issues as balance sheet leverage, liquidity and capital requirements, the treatment of systemically important institutions, and accounting rules, but the finalization and implementation of these developments will continue for some time.

During 2009–2010, OSFI worked with various domestic partners on the Financial Institutions Supervisory Committee (the Department of Finance, the Canada Deposit Insurance Corporation, the Bank of Canada, and the Financial Consumer Agency of Canada) to review lessons learned, and to discuss and coordinate issues related to the oversight of the financial sector. OSFI has considered where it can improve its regulatory regime and is actively taking steps to do so.

We continued our active participation in international forums to develop and implement better practices. These include the Basel Committee on Banking Supervision (BCBS), the Financial Stability Board, the International Association of Insurance Supervisors, the Joint Forum and the Senior Supervisors Group. Notably, the BCBS published consultative proposals to strengthen global capital and liquidity regulations in December 2009 with the goal of promoting a more resilient banking sector. (See details under BCBS section of Rule Making.)

Christopher Cardoza: Senior Director, Monitoring and Analytics Support Division, Supervision Support Group, Supervision Sector; Janice Knudson: Operations Coordinator, Assistant Superintendent’s Office, Supervision Sector

Christopher Cardoza [L], Senior Director, Monitoring and Analytics Support Division,
Supervision Support Group, Supervision Sector

Janice Knudson [R], Operations Coordinator, Assistant Superintendent’s Office,
Supervision Sector