How OSFI Reforms Can Unlock More Financing for Canadian Businesses

April 22, 2026 – Targeted changes to how prudential rules are calibrated and applied by the Office of the Superintendent of Financial Institutions (OSFI) can unlock more financing for Canadian businesses, according to a new communiqué from the C.D. Howe Institute’s Task Force on OSFI Prudential Requirements and Business Lending. 

The nine-member task force, established in 2026 in response to statements from the regulator on increasing credit to Canadian businesses amid global challenges, was mandated to deliver targeted commentary and recommendations on OSFI’s proposed reforms. 

The task force broke down their recommendations into near-term and long-term proposals. 

Beginning with the near-term, members argued that prudential policy can have the greatest impact on the “missing middle,” or businesses too large for retail bank lending but too small to access capital markets directly. Although large banks use internal models to set capital for small and medium-sized enterprise (SME) lending, OSFI plays a significant role by reviewing and approving these models, often encouraging more conservative assumptions that can push capital requirements above the actual level of risk. This bias and lengthy approval time is critical; therefore, the task force recommends OSFI dedicate resources to expediting the review and approval of internal bank model changes to enhance SME lending in the short term. 

Members also applauded OSFI’s plans to fast-track the federal continuance of credit unions and the incorporation of deposit-taking fintechs, recommending that credit unions need to expand if they are to play a larger role in SME lending.  

They suggested capital rules be tailored for federal credit unions, including the non-viability contingent capital conversion features, which are unlikely to work for cooperative structures. Further, OSFI should follow Australia’s lead by permitting Tier 2 forms of capital, like subordinated debt, to replace the requirements for Additional Tier 1 capital for smaller institutions with corresponding adjustments to leverage ratio requirements and credit unions. 

On the regulator’s treatment of insurance company investments in private credit funds, the task force encouraged OSFI to look through the legal structure and base capital requirements on the risk of the underlying assets, as it already does for certain equity investments in funds made by deposit-taking institutions. 

The task force also endorsed the federal government’s intention to remove the 5 percent ceiling on commercial lending allocations under the Insurance Companies Act, including the overly broad definition of commercial loans. To seize this opportunity, it urged OSFI to align supervisory expectations with the size, expertise, and risk management capacity of individual institutions to ensure the removal of the statutory limit translates into a genuinely more risk-based supervisory approach. Further, the regulator should ensure that smaller insurers have access to relief mechanisms similar to those available to larger life insurers. 

It was also recommended that OSFI strengthen its partnership-oriented supervisory model by improving turnaround times and transparency. 

Long-term recommendations from the task force include: 

• Evaluating whether standardized SME risk weights drawn from the Basel framework are properly calibrated for Canadian conditions; 

• Re-examining the capital treatment of credit exposures for life insurers under the Life Insurance Capital Adequacy Test, particularly where the current framework produces materially different capital charges for equivalent underlying risks, unless there is a clear prudential rationale; 

• Considering allowing life insurers to use their own risk models to compute their capital requirements, subject to OSFI review and approval, aligning the insurance framework more closely with that used for banks; and  

• Whether the 400 percent risk weight for speculative unlisted equity exposures reflects actual risk or whether there is undue conservatism in how certain exposures are classified.  

For more information, please contact: Peter MacKenzie, Senior Policy Analyst, C.D. Howe Institute; Lauren Malyk, Manager of Communications, C.D. Howe Institute, 416-873-6168, lmalyk@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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