Bank skyscrapers rise above Bay Street in Toronto's financial district, on June 16, 2010.Adrien Veczan/The Canadian Press
Prime Minister Justin Trudeau is politicizing the federal banking regulator.
His government’s plan to slap big banks and insurance companies with a special levy is putting the Office of the Superintendent of Financial Institutions (OSFI) in an awkward position by enlisting its help to develop the temporary fee – a task that falls outside of its supervisory mandate.
The Canada Recovery Dividend, as it is officially known, was dreamed up by the Liberal Party during the last federal election campaign. It’s one of two measures that target banks and insurers with earnings over $1-billion. The other is an increase in the corporate tax rate on profits above that threshold. Both proposals are designed to give Ottawa a cut of the sector’s prosperity during the COVID-19 pandemic.
There’s nothing wrong with ensuring that large companies pay their fair share of taxes, so let’s set aside the surtax issue – even though it is odd to single out financial institutions for a hike when many businesses experienced pandemic surges in profitability. The Canada Recovery Dividend, however, is a solution in search of a problem.
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During the campaign, the Liberal Party estimated the Canada Recovery Dividend would raise $5.5-billion over four years. But, bizarrely, none of the party’s policy wonks bothered to figure out how the special levy would be apportioned among the applicable banks and insurers.
Will each financial institution’s share be based on earnings, revenue, capital or some other financial metric? No one seems to know.
So, how exactly did the Liberals come up with their four-year revenue forecast for this temporary fee? It was almost as if the $5.5-billion estimate was pulled out of thin air and the policy produced on the fly because large financial institutions are easy targets for populist scorn during an unnecessary election.
That brings us back to OSFI. Its mandate is to protect depositors, policy holders, creditors and pension plan beneficiaries by making sure banks, insurers and other institutions remain financially sound. Although OSFI reports to the Minister of Finance, it is supposed to be an independent agency.
While it’s expected that OSFI would advise the government of the day on matters pertaining to its supervisory role, the regulator’s job does not (and should not) include fleshing out questionable tax and fiscal policies on behalf of its political masters.
And yet that’s exactly what appears to be happening with the Canada Recovery Dividend. OSFI is effectively being asked to help the Liberal government reverse-engineer a massive cash grab that targets the biggest companies the regulator oversees.
Perhaps that’s why Superintendent Peter Routledge recently made a point of stressing that he has a duty to “remain non-partisan” in his role on all matters, including the Canada Recovery Dividend.
“Part of doing that effectively is providing sound, technocratic advice to the minister in confidence,” Mr. Routledge told a banking industry conference, according to a copy of his speaking notes. “I shall hold to that duty in respect of all issues that implicate my office.”
Mr. Routledge then offered his “preliminary thoughts” on the Canada Recovery Dividend, pointing out there are precedents for such temporary measures that date back to federal budgets in the 1990s.
Yes, he was being factual when sharing those details. But those are the kind of talking points one would expect from Finance Minister Chrystia Freeland (who is ultimately responsible for developing the levy) rather than Canada’s top banking regulator.
The parameters of OSFI’s responsibility remain a mystery, but the regulator said in an e-mailed statement that its “role would be consultative.”
“As the regulator and supervisor of federally regulated financial institutions, OSFI may be engaged by the Department of Finance to provide analytical support,” OSFI said when asked about the rationale for its involvement in the fee’s development.
“In fulfilling its mandate, OSFI supports the government’s objective of contributing to public confidence in the Canadian financial system,” it later added.
The notion that this levy would bolster public confidence is a stretch. The Liberal government wants to use the money it earns from the fee and the surtax to help more Canadians buy homes. That sounds nice in theory, but our banks are already falling all over themselves to lend to creditworthy borrowers.
If some consumers have trouble qualifying for a mortgage from a chartered bank, perhaps it’s because they can’t actually afford to own a home.
Sadly, this isn’t the first time Mr. Trudeau has politicized OSFI to make political hay with misguided housing policies.
In early 2020, his government leaned on OSFI to relax the stress test for uninsured mortgages – even though the regulator had previously said those rules ensured the safety and stability of our banks.
At that time, froth was building in big urban housing markets and there was concern about household debt and consumer insolvencies. Even so, Mr. Trudeau instructed his then finance minister, Bill Morneau, to figure out a way to make “the borrower stress test more dynamic” and thereby curry favour with millennial voters.
Then, of course, the pandemic hit, interest rates plunged and the housing market began to overheat yet again. Not only did OSFI end up ditching that madcap proposal, it reversed course and toughened up the rules for uninsured mortgages last year.
That experience should’ve taught the Liberals why it is dangerous for politicians to meddle with the financial regulator’s mission. But it didn’t. Now those poor eggheads at OSFI are experiencing déjà vu.
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