Wednesday, March 23, 2016

Canada preparing for bail-ins as collapse of oil industry forces new legislation in their budget

On March 22, Canada's new ruling party submitted their budget for fiscal year 2016-17, and hidden within it was new legislation to approve of depositor bail-ins for banks that might become insolvent.  And with the Canadian oil industry in fill collapse due to lower oil prices, the leverage by the banks in the energy industry is pushing them closer and closer to default.



Introducing a Bank Recapitalization "Bail-in" Regime 
To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”. 
The Government is proposing to introduce framework legislation for the regime along with accompanying enhancements to Canada’s bank resolution toolkit. Regulations and guidelines setting out further features of the regime will follow. This will provide stakeholders with an additional opportunity to comment on elements of the proposed regime. 
Bail-in Regime for Banks 
Canada’s financial system performed well during the 2008 global financial crisis. Since that time, Canada has been an active participant in the G20’s financial sector reform agenda aimed at addressing the factors that contributed to the crisis. This includes international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”. Implementation of a bail-in regime for Canada’s domestic systemically important banks would strengthen our bank resolution toolkit so that it remains consistent with best practices of peer jurisdictions and international standards endorsed by the G20. - Zerohedge

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