Canada’s Financial Institution Structure Must Adapt to a Changing US Relationship

September 25, 2025 – Rising geopolitical tensions may make it more challenging for Canadian authorities to repatriate foreign assets of financial institutions that have large international operations if any of them were ever to fail in the future, according to a new report by the C.D. Howe Institute. The report warns of this growing risk, especially given the very large operations some major banks have in the United States, and offers ideas on how to manage these risks.

In “Home Advantage: Helping Financial Institutions Prepare for Financial Distress Amidst Rising Geopolitical Tensions,” Mark Zelmer, Fellow-in-Residence at the C.D. Howe Institute and former Deputy Superintendent of Financial Institutions at the Office of the Superintendent of Financial Institutions (OSFI), stresses the importance of encouraging Canadian financial institutions to keep more of their surplus capital and liquidity at home. Due to increased risks,  foreign authorities could potentially block, freeze, or ring-fence these assets for many years until they are satisfied that the claims of all of their local stakeholders have been addressed. This concern is heightened by the fact that, after four decades of expansion into the United States, operations at some banks now rival the size of their Canadian businesses in both assets and revenues.

The paper argues that the more that major Canadian financial institutions can be encouraged to keep the assets that back their surplus capital and liquidity on the books of the parent institutions here in Canada, the better-placed Canadian authorities would be to safeguard the interests of Canadian depositors and other creditors in any cross-border resolution operations involving those institutions.

“We need to reduce the leverage foreign regulators and courts could have over us if an internationally active Canadian financial institution were ever to face stress and require an orderly wind-down,” said Zelmer.

Zelmer recommends Canadian policymakers consider steps to encourage major banks and other internationally active financial institutions to invest more of the assets backing their surplus capital in Canada, while managing ring-fencing risks through targeted reforms. These include: enhancing disclosure by the six largest banks to allow greater market discipline over how recovery and resolution risks are managed; reviewing OSFI’s calibration of solo loss-absorbency requirements in light of recent geopolitical developments; and paying closer attention to the solo liquidity positions of major Canadian banks.

“Canada and its financial system need to adapt to a changing geopolitical environment,” concludes Zelmer. “It is better to act now in a thoughtful way while time is still on our side than to punt the issue until a crisis forces change.”

Read the Full Report

For more information, contact: Mark Zelmer, Fellow-in-Residence, C.D. Howe Institute; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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