Every once in awhile, it really hits home just how little of reality is reflected in Canada's media. Toronto's business district is buzzing about new regulations handed down by the OSFI that will severely restrict bank lending in spite of our institutions' record Tier 1 capital levels. Obviously, this will have sweeping implications for the Canadian economy. In the papers? Almost nothing. A Google News search for OSFI keywords reveals exactly one semi-intelligible article, via the National Post. Here is the key concept:
"In other words, mortgage assets that are part of an NHA securitization and which in the past were off-balance sheet, will make their way onto the balance sheet of the banks -- a move that boosts their assets and by definition, their ACM.
"This creates a nightmare for regulated entities as it blows up their assets to capital multiple. Every issuer has an ACM limit that they try to operate well below but you rarely hear about," the academic added.
Given that outcome, the academic wondered why no OSFI-regulated publicly traded financial institution had commented on how this proposed change will affect their ACM. "They've obviously done the work, because IFRS has been planned for years, but they have chosen not to share their findings with investors."
New OSFI Guidelines
No wonder no one wants to talk about it. Canadian banks undergo continuous Asset to Capital Multiple ratio tests by the OSFI, and are barred from exceeding a predetermined limit established for each individual bank. Adding new mortgages to their balance sheets means that even with high Tier 1 capital levels, it will be difficult to meet the same targets that they used to. So despite commitments to lend under the stimulus plan, banks may still try to keep a tighter grip on the purse strings.
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