Targeted Reforms Could Expand Capital Deployed to Businesses

February 19, 2026 – Regulation in the form of capital treatment is a critical factor in determining the flow of credit to Canada’s businesses, according to a new report from the C.D. Howe Institute.

Made up of seven experts in the field, the Institute’s Task Force on OSFI Prudential Requirements and Business Lending finds that changes to the structure of certain prudential requirements could reduce the challenge an institution faces in deploying surplus capital, leading to an increase in lending and investment opportunities.

Members emphasized that any policy response should be grounded in clear economic evidence about which parts of the Canadian economy are truly underserved in debt and equity markets, noting that the evidence often points to it being small and medium-sized enterprises. Members agreed that several actionable steps could be advanced now to better align capital with underlying risk and expand financing capacity:

• Review the calibration of bank capital requirements in light of the use of significant risk transfer transactions, including a mapping exercise across bank portfolios to determine whether direct recalibration would be more efficient;
• Refine OSFI’s treatment of insurers’ limited-partnership investments in private credit so that investment-grade credit is not uniformly classified as equity; and
• Provide large life insurers with greater flexibility in how they calculate capital – even if short of full internal model approval – to reflect their risk-management sophistication and support additional long-term funding for the economy.

Read the Full Report

For more information, please contact: Jeremy Kronick, Vice-President, Economic Analysis and Strategy, C.D. Howe Institute; or Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.