The federal government issued a consultation paper on Friday about the proposed regime to protect taxpayers from possible bank bailouts.

Finance minister, Joe Oliver, launched a public consultation on Friday on the government’s risk management framework for the banks that have been deemed systemically important. It says the framework aims first at reducing the likelihood that an institution could fail; and second, that if a bank did fail, that its shareholders and creditors bear the losses, rather than taxpayers.

The proposed regime would make it possible to recapitalize a failed bank by quickly converting some of its liabilities (such as its bonds) into regulatory capital (such as common stock); along with other actions to shore up a failing bank.

“In the highly unlikely event of a bank failure, the new regime will enhance the stability of Canada’s world-class financial system by shifting the burden of recovery and resolution from taxpayers to financial institutions and their shareholders and creditors,” said Oliver. “It will thereby ensure that market participants clearly understand their obligations and bear the consequences of the risks they take, and that taxpayers are not on the hook to bail them out.”

Comments on the draft consultation paper are due by September 12.