At a time when global geopolitical threats and instability are escalating, Peter Routledge, the head of the Office of the Superintendent of Financial Institutions (OSFI) sees room for added risk in Canada’s financial system.
Speaking at the Global Risk Institute (GRI) Summit on Wednesday in Toronto, Routledge, superintendent of financial institutions at OSFI said the financial system is resilient.
As evidence, he noted that Canada hasn’t seen a failure of a federally regulated deposit-taking institution since 1996, whereas the U.S. has seen more than 500. On the insurance side, there’ve been seven failures since 2000 in Canada (and not all were federally regulated) vs. 547 in the U.S.
“Given these statistics, I think it’s reasonable to conclude that OSFI could adjust its risk appetite with regards to new entrants,” he said, adding the regulator plans to revamp its approvals process to ease entry to the banking sector “and with that, mature our tolerance for risk.”
The resilience of the financial system can also be leveraged to help the Canadian economy adapt to global economic, technological and other shifts, Routledge said.
“Relative to Canada’s $3 trillion economy, … Canada’s banks have ample capacity to help fund the country’s adjustment in this new era,” he said.
He noted the systemically important banks reported common equity Tier 1 ratios averaging 13.7%, or 220 basis points above the floor, in the most recent quarter.
“In layperson’s terms, banks could make nearly $1 trillion in additional loans or other extensions of credit and remain above current capital minimums,” he said.
Routledge also noted that Canadian life insurers have boosted their core capital ratios by around 13% over the past six years, and maintain capital buffers that “can be similarly leveraged for new investments in the Canadian economy.”
OSFI recently cut capital requirements on life insurers’ infrastructure investments to facilitate increased spending.
Last month, it also released a revised policy plan outlining steps it’s taking to ensure Canada’s financial system can “deliver stronger outcomes for economic growth” while also reducing regulatory burden, in line with Ottawa’s Red Tape review.
“Given the resilience in the system, given where we are in the economy, we can begin to think of that resilience as something to be leveraged to enable the economy to navigate through a period of uncertainty,” he said.
Still, that uncertainty is significant. Comparing 2025 to the end of the Cold War period, he said: “The current era is no less bracing than that time.”
Challenges include increasing geopolitical instability, cyber threats, climate change, domestic economic shifts and technological innovation.
“The risks and opportunities facing Canadian financial institutions are complex and consequential,” Routledge said. “Canada’s financial system is navigating through a period of profound uncertainty.”
Innovation imperative
In conversation with Sonia Baxendale, GRI president and CEO, Routledge acknowledged OSFI may have built overly high protections into the system since the financial crisis.
“Unintentionally, we’ve built up the protection … walls pretty high and maybe we can tolerate a bit more risk in the system by making it easier for new entrants to come in.”
If entry is easier, new firms would be less likely to try to develop models that operate outside the regulated system, he said.
Canada also faces competition given U.S. developments on stablecoin. The recently passed GENIUS Act, which Routledge noted had bipartisan support in the U.S., will enable significant progress on stablecoin and tokenized deposits.
“That innovation seems to me to be coming,” he said adding that OSFI’s job is to both prepare for it and not stand in its way.
“We ought not to be impediments to innovation in our system, because I do think a Canada that falls behind in financial sector innovation will be a Canada that has a bit more challenges both in the financial system and the broader economy,” he said.
Routledge also touched on OSFI’s expanded mandate. In addition to ensuring institutions it regulates are in sound financial condition, in 2023, the federal government added responsibility for ensuring institutions have protections in place against threats to integrity and security, including foreign interference. It has created a new unit of about 50 people.