The March 29, 2012 federal Budget indicates that the Government of Canada will be moving ahead with a few important financial sector initiatives, but the Budget was short on detail.
The Government will amend legislation to provide support for the central clearing of standardized over-the-counter derivative transactions. Other unspecified measures will be taken to re-inforce Canada’s financial stability framework.
The Government reconfirmed its intention to establish a legislative framework for Canadian covered bonds. The Canada Mortgage and Housing Corporation (CMHC) will be the administrator of the covered bond program, to which federally and provincially regulated mortgage lenders will have access. The Government did not announce whether the covered bond framework would restrict the use of government-backed insured mortgages as collateral, as has been speculated. Unspecified enhancements to the governance and oversight role for CMHC were announced.
Historically, governments and their agencies have been prevented from owning shares of federal financial institutions. Importantly, the Government has announced that public sector investment funds will be permitted to make limited direct investments in federal financial institutions, providing those institutions with an additional source of long-term investment. These investments will be subject to the approval of the Minister of Finance. This is a welcome announcement for financial institutions, pension funds and their members.
The federal Government will assert its exclusive authority over banking activities by proposing a preamble to the Bank Act. It re-announced its intention to amend the Bank Act to clarify the prohibition on banks offering life annuities and similar products.