In most major covered bond issuing jurisdictions there are no limits on the issuance of covered bonds. Some jurisdictions, such as the United Kingdom and the Netherlands adopted issuance limits at the inception of their covered bond issuance, but have subsequently removed fixed limits. In both jurisdictions today the issuance limit is determined on a case-by-case basis by financial authorities based on the condition of the issuer. A few jurisdictions still retain a fixed limit: Australia at 8%, Greece at 20% and New Zealand at 10%. No other country has a limit as stringent as that of Canada. See, ECBC, European Covered Bond Fact Book, 1.4 Factors Affecting Asset Encumbrance (2014) at pages 54-55.

That all other issuers of covered bonds have the benefit of more accommodating regulation of covered bond issuance limits and Canadian covered bond programs have grown for nearly ten years without evidencing any problems, suggests that OSFI may be willing to increase its 4% limit. The 4% limit increasingly appears overly restrictive.

Even under the existing tight limits on issuance, CMHC reports that covered bonds have become increasingly important as a source of funding for residential mortgage loans for Canadian banks. Covered bonds have grown from funding 5% of residential mortgage loans in early 2013 to nearly 8% by mid-2015.

With the growing use of covered bonds as a funding source for supporting mortgage loan origination, it is not surprising to see that OSFI is considering changing the current 4% limit. If OSFI were to change to limit for issuance of covered bonds to 6% or 8% or 10%, the maximum capacity of each of the issuing banks would be as follows:

^*This assumes that the limit set by Autorite&#769 des marche&#769s financiers is increased comparably.

If OSFI were to raise the limit for covered bond issuance to 10% of total assets, that would create the potential for an additional C$320,683,000,000 of covered bonds outstanding based on current outstandings.