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With the initial economic effects of the Covid-19 outbreak now in the rearview mirror, federal financial regulators are turning their attention to the long recovery ahead.

During a webinar hosted by the C.D. Howe Institute, Ben Gully, assistant superintendent at the Office of the Superintendent of Financial Institutions (OSFI), detailed OSFI’s efforts to contain the early effects of the pandemic on the financial sector and the economy — such as adjusting banks’ capital rules to keep credit flowing.

Now, with the immediate crisis having subsided, OSFI is resuming its policy development work while keeping an eye on the ongoing fallout from the pandemic.

“We are monitoring the continuing effects of Covid-19 as policy measures unwind and the true economic cost and future trajectory of the pandemic becomes clearer,” Gully said.

Gully noted that many of the risks that existed before the pandemic haven’t gone away — and in some cases, they’ve intensified.

“For instance, there is an increased reliance on reinsurance and the business models in the insurance sector have been changing. Further, cyber risks have also become more critical as digitization accelerates,” he said.

While household debt remains high, corporate and sovereign debt has now ramped up too, and a prolonged low interest rate environment will exert further pressure on financial institutions and pension plans, Gully noted.

“As well, a particular challenge may arise at the eventual tapering of significant government support for the economy and financial markets,” he said.

Against that backdrop, OSFI has restarted policy development with the goals of preserving “a resilient financial system while also responding to the unprecedented levels of uncertainty due to the pandemic,” Gully said.

This includes OSFI resuming its work on insurance and pension-related guidance, restarting consultations on reinsurance practices and finalizing the implementation of the Basel III reforms.

“We are also watching developments in underwriting practices for residential lending,” Gully said.

Additionally, OSFI will be launching a consultation on addressing the financial risks from climate change.

Even amid renewed economic growth and the possibility of a vaccine, OSFI does not expect the effects of the pandemic will be shaken off quickly.

“Our experience in the years following the [global financial crisis] would suggest that the effects of the Covid-19 crisis are unlikely to be short-lived. OSFI is warming up for a marathon, not a sprint,” Gully said.

“Like the marathon runner, we need to be thinking about the last ten miles as much as the first ten. This means beginning to act now to prepare for an uncertain future.”