Office of the Superintendent of Financial Institutions
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Superseded by December 19, 2014 letter entitled Revised Covered Bonds Limit
In a letter to the industry dated February 27, 2007, OSFI requested that financial institutions refrain from issuing covered bonds while potential regulatory and policy concerns associated with these instruments were reviewed.
We have now concluded our initial review of the regulatory considerations. We note that covered bonds -- debt obligations issued by a deposit taking institution (DTI) and secured by assets of the DTI or of any of its subsidiaries -- provide a number of benefits but also raise concerns. For example, covered bonds can improve funding diversification and lower costs. However, they also create a preferred class of depositors, reducing the residual level of assets available to be used to repay unsecured depositors (including the Canada Deposit Insurance Corporation) or other creditors in the event of insolvency, depending on the amount issued and the nature of credit enhancements.
To balance the benefits and concerns associated with covered bonds, OSFI has decided at this time to limit the issuance of covered bonds, and to impose the following conditions:
For more information, please contact Gilbert Ménard, Capital Division at firstname.lastname@example.org or by phone at 613 990-8081.
Robert J. Hanna
Acting Assistant Superintendent