Facing higher capital requirements to meet requirements under the Basel III capital rules for global lenders, Canadian banks may soon be allowed to tap investments from global sovereign wealth funds under a proposal in this year’s budget.
Public-sector investment pools, in Canada and abroad, would be allowed to buy shares in Canadian banks for the first time if the plan is approved.
“Permitting these pools of capital to invest in Canadian financial institutions provides these institutions access to new sources of stable long-term investment, which promotes financial stability,” according to the budget document released in Ottawa.
The funds would have to meet certain criteria, including pursuing commercial objectives, to invest directly in shares of lenders such as Royal Bank of Canada. Some Canadian investment pools, including the Ontario Teachers’ Pension Plan, already have exemptions that allow them to buy bank shares. Canadian banks increased issuance of covered bonds this year before Thursday’s fiscal plan. The lenders sold $12.6 billion in covered bonds since December, compared with $6.6 billion in the same period a year earlier, according to data compiled by Bloomberg.