Skyline of the financial district

The Office of the Superintendent of Financial Institutions (OSFI) has unwound a temporary increase to the covered bond limit for federally regulated financial institutions, effective immediately.

Covered bonds are debt securities issued by a financial institution designed to cover claims should an issuer fail. Normally, a bank’s issuance of covered bonds is limited to 5.5% of its total assets for bonds issued to the market and pledged directly to the Bank of Canada.

In March 2020, OSFI raised the covered bond limit to 10% of a bank’s total assets (a bank’s maximum amount of pool assets relating to market instruments remained limited to 5.5%). The measure was announced alongside other changes designed to help financial institutions weather the pandemic.

“The uncertainty caused by the first wave of the Covid-19 pandemic made it necessary to adjust certain regulatory requirements including the covered bond limit,” Ben Gully, assistant superintendent, regulation sector with OSFI, said in a statement. “With market conditions stabilizing, it’s fitting that the covered bond limit should return to its pre-pandemic level too.”

Last month, OSFI announced it will unwind adjustments to the market risk capital requirements for banks as of May 1. OSFI has yet to announce when a temporary halt on banks’ dividend hikes and share buybacks will be lifted.