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Novel hybrid debt issuances by Canadian banks

Author(s): Timothy Hughes, Rosalind Hunter

Dec 8, 2020

Hybrid debt is debt with embedded equity features that are added to meet requirements imposed by a regulator, rating agency or some other third party having oversight of an issuer’s capital structure. The creation of a new form of hybrid instrument that satisfies the strict capital requirements applicable to Canadian federally-regulated financial institutions meant that 2020 was a milestone year for the development of hybrid debt in Canada. Osler was pleased to play a key role in pioneering the new alternative tier 1 capital note structure.

Regulatory capital requirements for banks

Effective January 1, 2013, the Office of the Superintendent of Financial Institutions (OSFI), the regulator having oversight of capital issued by Canadian banks, adopted an agreed set of rules developed by the Basel Committee on Banking Supervision in response to the 2008 financial crisis. These measures, called Basel III, are intended to strengthen the regulation, supervision and risk management of banks. They impose detailed requirements for the type of capital that may be issued by financial institutions to their investors...

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