Canadian financial institutions are staring down the barrel of a new world dynamic between Canada and the U.S. and Mark Zelmer, former deputy superintendent of financial institutions at the Office of the Superintendent of Financial Institutions, wonders if they’re prepared.
“What is becoming increasingly clear is that certainly our relation to the U.S. [is] going to fundamentally change and certainly the world is becoming a more adversarial environment.”
In a new report, the fellow-in-residence at the C.D. Howe Institute is asking organizations to consider the challenges of today and tomorrow when dealing with the U.S.’ ongoing geopolitical tension with Canada.
The report is asking Canadian banks to consider keeping assets that back their surplus capital and liquidity on the books in Canada, as a way for Canadian authorities to be better prepared and safeguard the assets in case there ever was a cross-border resolution.
“For major financial institutions that have large operations in other countries, with the way the world is going, [I’m] concerned about how well countries play together, trying to sort out if we have a major failure. . . . To my mind, the world is changing and I think our practices need to keep pace.”
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This concern also applies to institutional investors to the extent of using derivatives to hedge or count on creditors in countries with geopolitical risk.
“Are there ways of making it possible to have foreign assets held here in Canada — whether through the Canadian depository for securities, or whether through a custody account with a Canadian institution like a Canadian trust company — to basically make it more difficult for foreign jurisdictions to be able to grab those assets if there’s a problem with the investment fund.”
Zelmer is particularly concerned about the role of foreign regulators and courts could in a potential worst-case scenario where an internationally active Canadian organization could face an orderly wind-down. He wants more from policy-makers by way of encouraging organizations to invest more of their assets backing surplus capital in Canada.
Financial organizations shouldn’t assume if geopolitical trouble arises and financial assets are in question that Canadian and U.S. authorities will simply work it out fairly, he says. “They’ll have to assume it’ll be an adversarial process and I think they owe it to their stakeholders here in Canada to make sure that they don’t get the short end of the stick.”
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