Amid calmer markets, the Office of the Superintendent of Financial Institutions (OSFI) is unwinding regulatory relief that was introduced in response to the disruption caused by the onset of the Covid-19 pandemic.
OSFI said that adjustments to the market risk capital requirements for banks that were adopted last spring to bolster their financial and operational resilience will now be unwound on May 1.
The relief introduced in response to the pandemic included a reduction in the stressed value at risk (SVaR) multiplier, which ensures that adequate capital is held against periods of market stress.
At the start of the pandemic, the banks were allowed to reduce the multipliers due to the increased volatility in capital markets. The adjustment was intended to allow banks greater flexibility in addressing the stressed market conditions.
“Now that financial markets have stabilized, the level of the SVaR multipliers applied by banks will also be returned to what they were pre-pandemic,” OSFI said in a release.
“The uncertainty caused by the first wave of the Covid-19 pandemic made it necessary to adjust certain regulatory requirements such as the stressed value at risk measure. With market conditions stabilizing, it’s fitting that the SVaR multiplier should return to its pre-pandemic level too,” said Ben Gully, assistant superintendent, regulation sector, at OSFI.