Canada’s financial system is in a strong position and can afford to take more risks—including by embracing innovation in stablecoins, a type of crypto asset pegged to the value of the dollar, the head of the federal banking regulator said on Wednesday.
Speaking at the Global Risk Institute Summit in Toronto, Superintendent of Financial Institutions Peter Routledge struck a mostly positive tone on stablecoins. He praised bipartisan support for the GENIUS Act, U.S. stablecoin legislation passed in July, describing parts of it as “innovative and cool.” Speaking to reporters, Routledge said the Office of the Superintendent of Financial Institutions (OSFI) encourages banks to contact it with ideas for innovative products such as stablecoins. One approach the regulator might take is to encourage banks to stay in touch with OSFI while testing the product before launching, he said. “I think we can be in a non-disapproval mode,” he said—meaning the regulator isn’t necessarily granting its blessing for stablecoin experiments, but won’t stand in the way either. “We’re not going to slow this down.”
Stable GENIUS: Stablecoins, like everything else in crypto, have until now mostly been used to facilitate speculative trading by helping people swap one crypto asset for another on exchanges. But the GENIUS Act could pave the way for companies from Walmart to big banks to issue their own stablecoins. The U.S. Treasury Borrowing Advisory Committee predicts this could open the floodgates to mainstream consumer payments, with the sector growing eightfold to US$2 trillion by 2028. The Department of Finance, which oversees OSFI and creates the rules it’s tasked with enforcing, is in the process of developing federal legislation that will govern stablecoins. In the meantime, regulators, academics and crypto industry insiders alike say Canada faces the danger of both missing the opportunities they present and being unprepared for their risks.
Deposit flight: Routledge said he’s also mindful of the risks stablecoins pose. He said he shares concerns raised by academics and other regulators that banks’ ability to fund economic activity through lending could be eroded if many people shift their money from bank deposits to digital assets. If that happens, however, it’s better for regulators to have oversight, he said. “My preference… is to have the innovation choose to be in the protected, regulated system.”
Room for risk: Canada’s financial system can tolerate more risk-taking, Routledge added, noting that the country’s banks could make an additional $1 trillion in loans and remain within OSFI’s thresholds for how much capital they must hold in reserve. Routledge said he wants to encourage competition and innovation by cutting red tape and making it easier for companies to get banking licenses, a notoriously difficult process in Canada. “We’ve built up the protection walls pretty high. Maybe we can tolerate a bit more risk in the system,” he said.