Office of the Superintendent of Financial Institutions launched review in the fall to study liquidity concerns after Bay Street spat resulting from growing demand for these investments
OSFI confirmed the existence of its review in an e-mail to The Globe. “Cash ETFs, which have become very attractive to investors in light of the rising rate environment, are being reviewed by OSFI,” spokesperson Carole Saindon wrote. “In particular, we are focused on understanding the characteristics of this product from a liquidity perspective to ensure banks have appropriate treatment and are managing liquidity risk effectively.
Canada’s banks are heavily regulated, and there are now strict limits on how they fund their loans. Crucially, since the 2008-09 global financial crisis, OSFI has required them to fund more of their operations with highly liquid assets. Cash ETFs may not meet those guidelines.The differences in the treatment of cash ETFs among the big banks may have to do with the compositions of their deposits. RBC and TD are Canada’s two largest banks, and they have massive, low-cost deposit bases.
The four largest cash ETFs are sold by CI Financial Corp., Purpose Investments Inc., Horizons ETFs Management Inc. and Evolve Funds Inc. In response to e-mailed questions about OSFI’s review, RBC and TD did not answer directly. Both said they periodically review their product offerings. TD added that its Direct Investing clients have access to the TD Investment Savings Account, which currently pays 4.2 per cent annually.
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