Opening remarks, Assistant Superintendent Jamey Hubbs, prepared for OSFI’s Small and Medium-Sized Banking (SMSB) Risk Management via Webcast, Toronto, Ontario, March 29, 2021

Introduction

Thanks very much Brigitte, and thank you to all tuning in today. I’ll keep my remarks brief, so that we have plenty of time to run through the presentations and open the floor to questions.

The last Small and Medium Sized Bank webcast we held was in January 2020, a few months before COVID-19 began to affect all of our respective organizations and us personally. This past year has been incredibly challenging and the pandemic has certainly put the resilience of Canadian financial institutions to the test.

Through the pandemic, Canada’s small and medium sized banks (SMSBs) have served an integral role in the resilience of our financial sector and of our communities. You have worked closely with the official sector to ensure customers have the support they need to navigate the crisis, including lending support, loan deferrals and advice.

At the time banks entered the pandemic, they were well placed in terms of capital and liquidity. As the pandemic progressed, it is clear that banks’ had enhanced their operational resilience, as well as bolstering capital and liquidity levels.

Banks have—to date—managed their risks and adjusted effectively under incredible pressure. Banks were ready with developed Business Continuity Plans that allowed them to carry out their essential services uninterrupted.

Banks also managed their deferral programs effectively through to the fall 2020 and the concerns of a “deferral cliff” did not materialize as originally thought. As well, the original concerns of a potential liquidity crisis turned into a situation where banks’ liquidity levels actually increased as 2020 progressed.

The prudential preparations—in tandem with the extraordinary actions that the Government of Canada has taken to support the economy and financial markets—have helped maintain confidence in the financial system throughout this difficult period.

It is clear that banks have responded well. Nevertheless, it is equally clear that the environment going forward has become more complex.

Before we go forward, let us take a quick look back.

This time last year, we were operating in an unprecedented and volatile environment. The industry was contending with not only a global pandemic, but also a global oil price war.

At the height of the pandemic, OSFI acted quickly by refocusing our efforts to support operational capacity and resilience at financial institutions. Part of that effort included introducing temporary regulatory measures, and pausing our policy development and consultation work until institutions had some experience operating in the new environment.

As both the industry and OSFI gained more experience, we moved to cautiously restart our policy work and—where appropriate—stripped back some of the measures put in place. Some of those measures continue to apply and we assess them regularly for relevance. Stay tuned, as we are hopeful that as stabilization continues that we can unwind more measures throughout the near-term.

Now, just over a year from the first lockdown, COVID-19 continues to have real impacts on people’s lives and the economy. Although there is renewed optimism with the rollout of vaccines, and an improving economic outlook, we need to remain vigilant.

The exact trajectory of the pandemic and its residual impacts are unknown. Government supports to-date have been crucial in stabilizing families, businesses and the economy. Yet, how long will those last? What are the impacts when these supports wind down? These are important questions we are asking, and questions banks should be asking as well.

With an uncertain future ahead, readiness is key. Banks need to continue to be proactive, risk focused, and examine their risk profiles through the lens of the pandemic and consider multiple scenarios (as well as their individual dependencies).

It is also noteworthy that none of the risk issues we were concerned about before the pandemic have gone away, and so this work continues. Two areas of risk of note are technology and climate. It is no coincidence that as soon as we resumed consultations in 2020, we led with two discussion papers on these topics.

COVID-19 threatened the public health, and in turn changed our physical environment forcing us to rely on technology more than ever, magnifying existing technology risks. Banks have shifted well to their digital environments, but with this reliance on tech, firms need to remain vigilant to potential data threats and weaknesses in their digital environments.

Turning to risks related to climate-change, at OSFI, we have ramped up our efforts to better understand and prepare for the prudential impacts climate-related risk may have on the financial sector. One example is the pilot scenario analysis project we are undertaking with the Bank of Canada and some Canadian financial institutions to better understand the risk associated with a transition to a low-greenhouse gas economy.

The pandemic has revealed new risks and heightening concerns relating to existing ones, and they all will require attention and action. Today’s speakers can shed light on our planned actions going forward and answer any questions you may have.

Thank you. Now I’ll turn it back over to Brigitte to introduce our first speakers.