Issues Facing Financial Institutions
Potential transactions to respond to challenges facing financial institutions
Many foreign and domestic banks, insurance companies, trust and loan companies, credit unions and other financial institutions are currently facing capital and liquidity challenges. There are a number of potential transactions that institutions may consider in the current economic climate, either to address challenges facing them or to take advantage of challenges facing their competitors:
- acquisitions and dispositions of entities and business lines including by assumption reinsurance. For information regarding our experience in this area, please click on the link below for a list of selected transactions;
- equity and debt issuances to increase capital, including subordinated debt and preferred shares. In some cases, governments have become taken ownership interests in foreign financial institutions, which can raise issues if such institutions have operations in Canada. For information regarding our experience in this area, please click on the link below for a list of selected transactions;
- reorganizations, amalgamations and other business combinations. For information about business combinations of credit unions, please see our paper "Why Credit Unions are Disadvantaged in Business Combinations: A Summary of Provincial Legislative Regimes Governing Business Combinations of Credit Unions”;
- demutualizations, including sponsored demutualizations. For more information about the sponsored demutualizations, please see our paper "Sponsored Demutualization Comes to Canada";
- reinsurance including to obtain capital relief; and
- securitizations.
All of these transactions raise issues under applicable financial institutions legislation and may require regulatory approvals.
Legislative and regulatory response to the financial crisis
Financial institutions are subject to a continuously evolving legislative and regulatory environment. In response to the financial crisis, the Minister of Finance announced in Budget 2009 the Government’s intention to propose an authority that would allow the Government to inject capital into federally regulated financial institutions. The Budget also indicated that the Government will propose that the Canada Deposit Insurance Corporation (“CDIC”) be given greater flexibility to safeguard financial stability in Canada, including by expanding CDIC’s power to acquire and hold shares in its member institutions and to vote those shares. Both of these proposals have been introduced in Bill C-10, An act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures. For further information regarding Budget 2009, please see our paper “Federal Budget 2009: A Stimulating Budget in Uncertain Times”.
For its part, the Office of the Superintendent of Financial Institutions has released new rules relating to normal course issuer bids, securitizations and capital requirements, including rules providing additional flexibility relating to preferred shares and revising capital requirements relating to segregated funds. The Office of the Superintendent of Financial Institutions is also considering the impact of the financial crisis on business plans submitted by parties applying to establish subsidiaries or branches in Canada and in some cases is asking applicants to review these business plans. For information regarding recent developments regarding capital, please see our paper “Recent Developments Related to Capital Applicable to Federally Regulated Financial Institutions”. For information regarding other legislative and regulatory developments, please see our podcast of a seminar on “Legal and Regulatory Developments Affecting Financial Institutions".
More generally, current economic conditions suggest that institutions should give careful consideration to the adequacy of their risk management policies and processes. For information regarding corporate governance expectations of the Office of the Superintendent of Financial Institutions, please see our paper “The New Corporate Governance Guideline of the Office of the Superintendent of Financial Institutions”.
Selected Experience
|