Superintendent’s welcome remarks at OSFI’s Risk Management Webcast, June 18, 2024

Welcome everyone to the 2024 version of our annual Risk Management webcast.

I’d specifically like to talk about our risk environment. We like to say the risk environment is stable and, while that might be true on the surface, over the last year I wouldn’t use the adjective stable. I think over the past year Canadian households and businesses have dealt with the aftermath of a very substantial period of high inflation and the corollary of high prices and expenses.

We have had to endure, as a country, the unprecedented level of wildfires in our northwest last summer, which illustrates the financial risk of climate change. Our banking system has had to absorb, and has absorbed, the steadily increasing credit cost driven by interest rates that are higher than they’ve been for the past decade or so, and by, again, higher prices across the economy.

Life insurers have had to adapt to probably a once in a generation (and hopefully a once in a generation) change to the valuation standard applied to their balance sheets (i.e., IFRS 17). P&C (property and casualty) insurers continue to manage and manage well the prudential risks of climate change.

Peers and colleagues in the United States and Europe have absorbed significant shocks to their financial systems produced by institutional failure. We had to adapt to new hostilities in the Mediterranean; we’ve had the Ukraine war going on for some time and the war between Israel and Hamas continues in Gaza. All of which means even though the risk environment is stable on the surface, underneath the surface there’s a lot going on.

Our job at OSFI is to make sure that everyone within our jurisdiction remains well prepared to withstand shocks that could occur. I would say the shocks that we feared last year never materialized. I hope I can say the same thing next year.

Interest rates are elevated relative to the last 10 years but not relative to the last 30 years and debt service remains a challenge for both households and businesses.

Markets continue to produce uncertainty and volatility when it comes to asset valuation and investment risk. Geopolitical conflicts have exacerbated external vulnerabilities and indeed produce quite regularly very significant cyber risks for the institutions in Canada’s financial system.

Now, we think our financial system has ample capital buffers to absorb all this uncertainty that I’ve referred to. Even with that point of view, we always challenge ourselves here at OSFI to make sure that we don’t become complacent. With this Risk Management webcast, we aim to address our responses and actions to this rapidly changing risk environment. We stress the importance of heightened prudence and conservatism in capital management practices. We see this as a key foundation of good governance.

I’m going to leave what we’re doing today to my colleagues that follow me, but the most important two things that we’re doing are, first, that we’re endeavouring to be as transparent as we possibly can in terms of what we intend to do, as communicated through our Annual Risk Outlook, which uses plain language to describe the risks we face, as well as our supervisory and regulatory responses.

Second, we are proactive in how we respond to those risks. We would rather face criticism for acting early and too aggressively than face criticism for acting too late. The financial system is an interconnected, sophisticated network of players, and weakness in one little corner of our financial system can metastasize very quickly throughout the financial system, and it is OSFI’s job to mitigate that risk.

With that, and throughout the day, my colleagues will discuss several important topics such as the Supervisory Framework, industry supervision strategies, our new integrity and security mandate and operational resilience.

Moving forward, I think everyone on this call is interested in sound risk management, it’s the hallmark of the Canadian financial system. The Canadian financial system stands out for its resiliency and success and that has a lot to do with the managers and the executives who work for the institutions we regulate. And we at OSFI like to think we play our part to help everyone along towards that outcome.

We’ll continue to be open in our dialogue and transparent in our decisions, and this event is part of that. Thanks very much.