OSFI Becoming Even More Secretive?

Tara Perkins of the Globe & Mail claims:

Canada’s financial regulator has told banks and insurance companies they must finance any big takeovers by issuing new shares, making major acquisitions more difficult just as the country’s banks are at the height of their international prowess.

OSFI did not issue a written notice of its edict, but has been quietly advising the banks and insurers of the requirement. OSFI has told the financial institutions it oversees that it expects them to “finance material acquisitions through new equity,” spokesman Rod Giles said. “This is primarily because capital requirements are subject to significant change.”

Analysts who cover the banks say they were not aware that the regulator had told the institutions to pay for deals with new equity, but it’s likely the market would demand the same thing for any major deal because investors realize how important capital will be in the future.

Such secretiveness and back-door regulation is a disgrace if true – and OSFI has often demonstrated its contempt for investors – who are supposed to be the “third pillar” supporting bank safety.

3 Responses to “OSFI Becoming Even More Secretive?”

  1. mpisni says:

    I agree James , for some reason regulators continue to think investors can’t handle information without panicking up or down. Openness is allways the best approach and avoids surprises or suspicions as to motives. Be honest with investors – we may not be a bright as regulators but we try !!

  2. JP Koning says:

    Does this lack of openness have something to do with Canada’s principles-based rather than rules-based approach to regulation?

    After all, rules are easy to describe with words, but principles are difficult to pin down. Back door and secret changes will always be the physical manifestation of a vague “principles” based approach to regulation.

  3. jiHymas says:

    Does this lack of openness have something to do with Canada’s principles-based rather than rules-based approach to regulation?

    I think it has more to do with the culture at OSFI – a culture in which everything is secret by default and only made public with an explicit decision.

    For instance, speeches by OSFI pooh-bahs are explicitly signalling that insurer capital may well become regulated at the consolidated level, rather than at the operating level as is currently the case. There would have been no problem with dropping in a paragraph stating that OSFI would be most upset if bank acquisitions were settled with cash – after all, they have explicitly stated that they will examine share buy-backs with a suspicious eye.

    The problem with OSFI – and with securities regulation in general – is revolving door regulation and regulatory capture. Everybody is currently pretending to be most concerned that Toyota hired former regulators for its regulatory affairs department, but this is a routine occurance in the securities industry.

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