COVID-19 Measures – FAQs for Federally Regulated Deposit-Taking Institutions

OSFI has prepared the following questions and answers for federally regulated financial institutions about measures it has taken to address issues stemming from COVID-19.

Have a question that is not addressed in these FAQs? Please send your question to COVID-19FAQS@osfi-bsif.gc.ca.

Capital

  1. Why did OSFI lower the domestic stability buffer (DSB)?

    OSFI reduced the DSB to 1.0% of risk-weighted assets so that large banks could use this capital to make loans to Canadian businesses and households, potentially up to $300 billion.

    The DSB reduction makes clear to markets that OSFI considers that measured declines in bank capital ratios are appropriate in the current circumstances and entirely consistent with the functioning of a well-capitalized and prudent institution. OSFI will monitor the use of this buffer so it can respond to further stresses, and will not increase it for at least 18 months.

  2. If conditions deteriorate further or if banks start to report significant losses, will OSFI reduce the buffer further?

    OSFI will continue to assess the level of the DSB and will make adjustments as necessary. There is capacity to respond to further stresses. The exact timing and size of any release in the buffer would consider a range of factors, including an assessment of current conditions as well as forward-looking expectations around the materialization of risks to key vulnerabilities.

  3. Does OSFI expect banks to use the released capital entirely for increased lending?

    The decrease in the DSB was made to support banks' ability to supply credit to the economy during an expected period of disruption related to COVID-19 and related market conditions. OSFI expects that banks will use the additional lending capacity to support Canadian businesses and households.

  4. How is OSFI monitoring the use of the $300 Billion in lending capacity freed up by the DSB reduction?

    OSFI expects that banks will use the additional lending capacity to support Canadian businesses and households during this period of stress. OSFI continues to have frequent discussions with banks and are monitoring their capital and liquidity positions as well as exposures. OSFI expects banks to be closely tracking their credit portfolios and reporting to OSFI on a regular basis on developments in those portfolios in response to the DSB release and other support programs and initiatives launched recently by the Government of Canada in response to COVID-19 and market conditions.

  5. Can you clarify the impact of the DSB reduction on Total Loss Absorbing Capacity (TLAC) requirements?

    As announced on March 13, the DSB has been decreased by 1.25% and is now 1.00%. D-SIBs' target risk-based capital and TLAC ratios decreased by 1.25% correspondingly.

    D-SIBs continue to be expected to fully meet their target TLAC requirements by November 1, 2021. The target risk-based TLAC ratio is the sum of the minimum risk-based TLAC ratio plus the DSB. Given the DSB reduction, the target risk-based TLAC ratio is now 22.5% Risk-Weighted Assets (RWA).

    D-SIBs' target TLAC Leverage ratio is now 6.75%.

  6. What kind of restrictions has OSFI put in place to prevent banks and insurers from increasing dividends or share buybacks?

    OSFI specified in its March 13 announcement that banks and insurers should not use this measure to increase distributions to shareholders or employees, or to undertake share buybacks.

  7. The March 13th announcement indicated that "dividend increases and share buybacks of federally regulated financial institutions should be halted for the time being". Does that mean no disbursements or dividends, or buybacks?

    Institutions can continue to pay regular dividends but may not increase them. To clarify, dividend increases approved before OSFI's announcement on March 13, 2020 may proceed. OSFI's announcement applies only to new dividend increases post March 13, 2020.

    Institutions must immediately halt all purchases or buybacks of common shares, including buybacks previously approved by OSFI.

    Institutions may continue to undertake purchases or redemptions of capital instruments other than common shares subject to the prior approval of the Superintendent and any other requirements set out in OSFI's capital guidelines. This includes non-qualifying capital instruments.

  8. Will OSFI consider placing restrictions on dividends in the future and what would the trigger be?

    On March 13, OSFI instructed all federally regulated financial institutions that dividend increases and share buybacks should be halted for the time being. Institutions can continue to pay regular dividends but may not increase them. To clarify, already approved increases to dividends that occurred before OSFI's March 13 announcement may proceed, but that no new dividend increases can be made post March 13. OSFI will continue to monitor market conditions and the related impacts on FRFIs' financial condition. Additional measures will be considered as appropriate and necessary.

  9. How do capital requirements for Canadian banks compare to those in other countries?

    Canada's regulatory framework is strong and conservative. OSFI participates in the development of internationally-agreed upon standards pertaining to the capital requirements for banks as a member of the Basel Committee on Banking Supervision (BCBS). These standards are then implemented by authorities within each of the member countries, taking into account differences in their respective industry, market, and legal frameworks.

    The BCBS has a Regulatory Consistency Assessment Programme (RCAP) which monitors and assesses the adoption and implementation of its standards, while encouraging a predictable and transparent regulatory environment for internationally active banks. Canada's regulations are assessed as "Compliant" with the international standards.

  10. Other countries have been announcing limits on dividends along with releases of their buffers. Is OSFI contemplating providing similar instructions to banks and insurers?

    OSFI continues to remain closely engaged with institutions in regards to their capital management. OSFI continues to monitor economic conditions and impacts to FRFIs and consider additional measures as appropriate.

  11. What are Small and Medium Sized Deposit-Taking Institutions' (SMSBs) Pillar II capital buffers intended to guard against? What are the implications of using these buffers?

    Buffers are built-up during normal times to provide an institution with additional flexibility in times of stress like the current Covid-19 pandemic event. Pillar II capital buffers can be used to absorb unexpected losses arising from the impact of the COVID-19 disruption allowing institutions to continue to provide financial services. Deposit Taking Institutions (DTIs) that plan to use Pillar II buffers by operating below their internal capital targets should have prior discussions with their Lead Supervisor. OSFI's review of planned Pillar II buffer usage will consider whether a SMSB's expected use of the capacity is prudent, and capital conservation actions have been incorporated as appropriate.

  12. How will OSFI monitor the use of SMSBs' Pillar II buffers?

    OSFI continues to have frequent discussions with SMSBs and is monitoring their capital and liquidity positions as well as exposures. In cases where SMSBs are utilizing their capital buffers, they should use such capacity prudently and consider appropriate capital conservation actions. OSFI expects SMSBs to be closely tracking their credit portfolios and reporting on developments to OSFI on a regular basis.

  13. What sorts of risks or factors would a SMSB take into account when establishing its internal capital targets?

    A SMSB's internal target is the sum of the minimum requirements, Pillar I and Pillar II buffers. OSFI expects SMSBs to set their internal targets at levels that are adequate to support the nature and level of their risks. This includes consideration of material risks unique to an SMSB's operations, risks that are not sufficiently captured in Pillar I capital requirements and a SMSB's stress testing results. For example, a SMSB should consider its exposure to various aspects of credit risk (including concentrations), market risk, operational risk, and interest rate risk in the banking book, amongst others.

  14. Could you please confirm expectations surrounding timelines for replenishing the capital buffers?

    A DTI that uses its Pillar II buffers is expected to provide OSFI with a credible plan that demonstrates how and when it intends to restore its buffers. In reviewing these plans, OSFI will consider the specific circumstances of each institution.

  15. Is OSFI considering any changes to the capital risk weights under the Standardized Approach for credit risk as a result of the circumstances stemming from COVID-19?

    OSFI has announced several regulatory adjustments in the context of the economic environment caused by COVID-19 over the past weeks. This includes determining that loans subject to payment deferrals will continue to be treated as performing loans under regulatory capital requirements, transitional arrangements for the capital treatment of expected credit loss provisioning, and temporary exclusions to the leverage ratio requirements. OSFI will continue to monitor market conditions in determining whether additional measures are appropriate in the current environment, however, changes in the Standardized Approach risk weights are not currently under consideration.

Payment deferrals

  1. What does OSFI mean when it says banks can treat mortgage borrowers who apply for payment relief as performing loans? When does a bank now have to designate a mortgage loan as non-performing for capital purposes?

    Payment deferrals of up to six calendar months granted before August 31, and payment deferrals of up to three calendar months granted after August 30 but on or before September 30, should not contribute to the determination of a mortgage loan as non-performing. Under normal circumstances non-performing, or past-due, loans are subject to higher capital requirements than performing loans. By allowing banks to treat borrowers as performing, banks' capital requirements are not required to rise due to payment deferrals. This reflects the flexibility being offered by banks to assist borrowers that are temporarily unable to service their loan during this time. After the payment deferral period ends (up to a maximum of three or six calendar months, as applicable according to the August 31 letter), the usual rules for designating a mortgage loan as non-performing would apply. A bank would designate a loan as past due if the borrower fails to meet the revised schedule of payments.

  2. If institutions allow payment deferrals beyond the periods specified in the August 31 letter, how long do the capital treatments outlined in the March 27 letter and August 31 letter apply?

    If the deferral was granted before August 31, the special capital treatment outlined in the March 27 letter will apply for up to six calendar months from the effective date of the deferral. If, however, the deferral was granted after August 30 but on or before September 30, it will apply for up to three calendar months from the approval date of the deferral, as set out in the August 31 letter. Institutions may choose to extend longer deferrals in accordance with their internal policies; however those loans will not receive the special capital treatment outlined in the March 27 and August 31 letters beyond three or six calendar months, as applicable.

  3. What is included in the definition of mid-market commercial? Can institutions include Commercial Real Estate (CRE) in this category?

    There is not a specific definition of mid-market commercial in the Capital Adequacy Requirements (CAR). Institutions should use their own internal definitions of this asset class, which can include commercial real estate.

  4. Does the capital treatment outlined in the March 27 and August 31 letters apply to loans where the institution provides other forms of relief to its clients (e.g. skipped or reduced payments, extended terms, etc.)?

    Yes, the capital treatment applies to other forms of relief. A bank would designate a loan as past due, and start counting arrears, if the borrower fails to make a scheduled payment in full, including rescheduled payments. For purposes of determining when a loan is past due, the institution can take into account reduced payments as well as any changes to the term of the loan, including modified payment schedules.

  5. Updated - What is OSFI's position on the capital treatment after the specified deferral period (i.e., three or six months, as applicable according to the August 31 letter) is over? What happens at the end of the deferral period if a component of these customers default or are in arrears? Does this treatment change for new deferrals granted after September 30?

    Delinquency should be measured based on the modified schedule of payments. For all payment deferrals agreed to between the lender and borrower, customers in arrears at the end of a period of full payment deferral should continue their arrears count that existed prior to the period. Customers that were not in arrears prior the period would begin the count from zero. This treatment does not change for new deferrals granted after September 30; however, allowances for credit losses would still need to be held in accordance with the relevant accounting principles, including an assessment of whether the risk of the portfolio has increased since origination.

  6. In light of the insurers indicating that they would allow payment deferrals in excess of the original mortgage balance, what are the capital implications if this was rolled out to a conventional / uninsured mortgage portfolio? What are the implications if the loan to value (LTV) exceeds 80%?

    For uninsured/conventional mortgages, the capital treatment described in the March 27 and August 31 letters would apply. For the capital requirements, DTIs do not need to recalculate their LTVs when loan deferrals are granted. All mortgages issued at origination with LTVs below 80% would continue to be eligible for a 35% risk weight under the Standardized Approach. This treatment would also apply during mortgage renewals; however, LTVs would need to be recalculated if a mortgage is refinanced.

  7. OSFI has indicated that institutions should continue to assess the credit quality of borrowers and follow sound credit risk management practices. What are OSFI's expectations? Is it discouraging institutions from giving payment deferrals to certain borrowers?

    OSFI expects institutions to continue applying sound underwriting in all circumstances (including the likelihood of borrowers to repay when the payment deferral ends). Sound underwriting and OSFI's oversight will support continued financial resilience and stability during the current environment and thereafter.

  8. Do payment deferrals include both interest and principal?

    Payment deferrals may refer to deferrals of the full interest and principal payments, or to deferrals of a portion of the payment (e.g. principal). The extent of the deferrals is at the discretion of the lender.

  9. How does OSFI treat loans that are deferred in jurisdictions other than Canada?

    The treatment in the Capital Adequacy Requirements Guideline and in the March 27 and August 31 letters applies to loans of Canadian institutions irrespective of the jurisdiction in which the loan is originated.

  10. How does the six-month limit apply for a payment deferral granted between March 27 and August 30 (e.g. a deferral effective June 1)? Does it qualify for the capital treatment for a period of six months?

    Yes. For any payment deferral granted before August 31, the capital treatment outlined in the March 27 letter can be applied for a maximum of six calendar months starting from the effective date of the loan payment deferral granted by the DTI (e.g. a payment deferral that is effective on June 1 would be eligible for the capital treatment until December 1). The actual payment deferral granted by DTIs to their borrowers can be shorter or longer than six months. Deferrals granted after September 30 no longer receive the special capital treatment.

  11. How does the three-month limit apply for a payment deferral granted after August 30 but on or before September 30 (e.g. on September 1)? Does it qualify for the capital treatment for a period of three months?

    Yes. For any payment deferrals granted after August 30 but on or before September 30, the capital treatment outlined in the March 27 and August 31 letters can be applied for a maximum of three calendar months starting from the approval date of the loan payment deferral granted by the DTI (e.g. a payment deferral that is approved on September 1 would be eligible for the capital treatment up to December 1). The actual payment deferral granted by DTIs to their borrowers can be shorter or longer than three months. Deferrals granted after September 30 no longer receive the special capital treatment.

  12. How should a payment deferral that is approved before August 31 and with an effective date on or after August 31 be treated?

    Such a payment deferral should be treated consistently with a payment deferral granted between March 27 and August 30, and thus would qualify for the special capital treatment for a period of six calendar months starting from the effective date of the loan payment deferral granted by the DTI.

  13. OSFI has clarified that capital treatment in the March 27 and August 31 letters apply to other forms of relief including skipped payments and extended terms. Can other forms of relief such as relaxing the covenants and margining requirements be included?

    Covenant waivers and similar forms of relief with a direct link to the COVID-19 pandemic qualify for the same capital treatment outlined in the March 27 and August 31 letters. Some examples of direct links to the pandemic include breaches caused by a temporary drop in demand, disruption in supply, or inability to perform a covenanted action. Consistent with payment deferrals, institutions are expected to continue applying sound underwriting in all circumstances.

  14. If the payment deferral plan is modified, can the lender continue to treat the customer as performing (e.g. if a customer elects to defer one month but then comes back and needs two more months, in the spirit of the original deferral can this loan be treated as performing)?

    Yes, short-term deferrals may be extended and maintain the capital treatment in the March 27 and August 31 letters as long as the total duration of the deferral is no longer than six calendar months for deferrals originally granted before August 31, or no longer than three calendar months for new deferrals granted after August 30 but on or before September 30. For loans that have not previously been granted a deferral and are granted a deferral after August 30 but on or before September 30 (new deferrals), the capital treatment will end no later than December 31, 2020.

  15. Can lenders apply the capital treatment in the March 27 and August 31 letters to leases (equipment) to small and medium sized businesses?

    Yes,the capital treatment of loans outlined in the March 27 and August 31 letters would equivalently apply to deferrals granted by DTIs in relation to other receivables from small business and mid-market commercial clients, including equipment leases.

  16. The March 27 letter states that loans will not be considered delinquent when determining the probability of default (PD) under the internal ratings based (IRB) approach as a result of payment deferrals. Does this mean that there should be no change to a borrower's PD for the duration of any payment deferral granted?

    The granting of a payment deferral of up to the specified duration (i.e., three or six calendar months, as applicable according to the August 31 letter) should not, in isolation, result in changes to a borrower's PD under the IRB approach. However, we expect institutions to still consider and reflect changes in other risk drivers when determining a borrower's PD, regardless of whether or not that borrower has been granted a payment deferral. Therefore, the migration of borrowers across IRB PD bands should be considered when appropriate.

  17. When would a bank start counting a mortgage as being delinquent/in arrears/past due? Does this change if the lending bank authorizes another deferral after the specified capital treatment period has elapsed, or if the borrower makes partial payments?

    A bank would designate a mortgage as past due, and start counting arrears, once the borrower fails to make a scheduled payment, which includes situations where the borrower makes payment of less than the agreed upon amount. If a loan is restructured, the loan would not be considered delinquent as long as the borrower makes the restructured payments as scheduled. Once the special capital treatment ends, banks should follow their internal policies in determining which options they offer customers, which may vary by product and by situation.

  18. If an existing deferral expires during the transition period after August 30 but on or before September 30, for the purposes of the August 31 letter would any subsequent deferral of the same loan be considered a deferral granted before August 31? Or would it be considered a deferral granted after August 30 but on or before September 30?

    For purposes of the August 31 letter, a deferral granted after August 30 but on or before September 30 refers to a deferral on a loan that has not previously been granted a deferral. Deferrals initially granted before August 31 may qualify for the special capital treatment for a period spanning up to six calendar months from the effective date of the deferral, including extensions of the original deferral.

  19. Is the determination of whether a payment deferral is a new deferral made on a loan basis or on a borrower basis? For example, if a customer with a pre-existing mortgage deferral comes to a lender in September and is granted a credit card loan deferral, would the deferral of the credit card loan be eligible to be treated as performing for three months for capital purposes as a separate, new deferral?

    The determination of whether a deferral is a new deferral is on a loan basis, and so a loan granted a deferral in September, that has not previously been granted a deferral, would be eligible for the treatment for up to three months, regardless of whether the same customer had previously received a payment deferral on another loan.

Expected Credit Loss (ECL) capital treatment

  1. How does the adjustment to CET1 interact with the Tier 2 add-back?

    Any amount included in CET1 capital should be removed from the amount included in Tier 2 capital. Please refer to this document (link) for additional guidance on the Expected Credit Loss (ECL) capital treatment.

  2. Does the ECL treatment differ based on the vintage of the loan? For example, for the 2020 vintage, do these loans keep the 70/30 split throughout, or does the 2020 vintage's credit change by year (i.e. 50/50 in 2021 and 25/75 in 2022)?

    The ECL capital treatment does not differentiate by the vintage of the loan. The scalar changes by reporting date and is applied to the increase in allowances calculated for a given quarter relative to the baseline (net of tax effects). For example, in Q1 2020, a scalar of 70% will apply against the increase in allowances taken for all loans (irrespective of vintage or origination date).

  3. How does the ECL capital treatment interact with the regulatory limits for the inclusion of allowances in Tier 2 Capital (1.25% of Risk-Weighted Assets under the Standardized Approach and 0.6% of Risk-Weighted Assets under the Internal Ratings Based Approach)?

    Allowances included in Common Equity Tier 1 (CET1) capital are subtracted from allowances in Tier 2 capital. If an institution is at the above referenced limits of allowances in Tier 2 capital, the addition to CET1 capital should be offset by a reduction in Tier 2 capital, resulting in no change to the institution's total capital. However, if allowances included in CET1 capital were to exceed allowances eligible for inclusion in Tier 2 capital for an institution, that institution should report no allowances in Tier 2 capital for that quarter, but would continue to add allowances to CET1 capital. The limits on the inclusion of allowances in Tier 2 capital do not apply to the inclusion of allowances in CET1 capital under this transitional arrangement.

  4. In the April 9, 2020 letter, footnote #1 indicates that the tax rate used in the calculation should be the same tax rate as is used for the creation of deferred tax assets that relate to expected credit losses. Is another option available in cases where such rate cannot easily be determined?

    Institutions may choose to apply their effective corporate tax rate for the quarter, calculated as the institutions' income tax expense for the quarter divided by income before income taxes for the quarter.

Disclosure expectations for ECL transitional arrangements

  1. What are the public disclosure requirements for DTIs using the transitional arrangements for expected credit loss provisioning?

    As part of their Pillar 3 regulatory capital disclosure, DTIs are required to disclose the transitional scalar applied during the reporting period as well as each of the Common Equity Tier 1 (CET1), Tier 1 Capital, Total Capital, Leverage and Total Loss Absorbing Capacity (TLAC) ratios had the transitional arrangement for expected credit loss (ECL) provisioning not been applied.
    For D-SIBs and SMSBs, the following lines should be inserted in the Pillar 3 Composition of Regulatory Capital (CC1) template:

    • 29a: Common Equity Tier 1 Capital (CET1) with transitional arrangements for ECL provisioning not applied
    • 45a: Tier 1 Capital with transitional arrangements for ECL provisioning not applied
    • 59a: Total Capital with transitional arrangements for ECL provisioning not applied
    • 61a: CET1 Ratio with transitional arrangements for ECL provisioning not applied
    • 62a: Tier 1 Capital Ratio with transitional arrangements for ECL provisioning not applied
    • 63a: Total Capital Ratio with transitional arrangements for ECL provisioning not applied

    Please include the add-back to CET1 pertaining to transitional arrangements for ECL provisioning (as a positive amount) in line:

    • 26: Other deductions or regulatory adjustments to CET1 as determined by OSFI

    For DSIBs and SMSBs, the following lines should be inserted in the Pillar 3 Leverage Ratio Common Disclosure (LR2) template:

    • 20a: Tier 1 Capital with transitional arrangements for ECL provisioning not applied
    • 22a: Leverage ratio with transitional arrangements for ECL provisioning not applied

    For D-SIBs, the following lines should be inserted in the Pillar 3 Key metrics - TLAC requirements (KM2) template:

    • 1a: Total loss-absorbing capacity (TLAC) available with transitional arrangements for ECL provisioning not applied
    • 3a: TLAC ratio: TLAC as a percentage of RWA (row 1a / row 2) (%) available with transitional arrangements for ECL provisioning not applied
    • 5a: TLAC Leverage Ratio: TLAC as a percentage of leverage ratio exposure measure with transitional arrangements for ECL provisioning not applied (row 1a / row 4) (%)
  2. When do DTIs using the transitional arrangements for expected credit loss provisioning have to start applying these disclosure requirements?

    DTIs with December 31st year-ends, should include this as part of their Q1 2020 Pillar 3 regulatory reporting. DTIs with October 31st year-ends, should include this as part of their Q2 2020 Pillar 3 regulatory reporting.

Market risk

  1. Can you clarify the reduction of stressed VaR (SVaR) multipliers?

    Institutions are required to calculate their market risk capital requirement by including a VaR estimate of their portfolio under both the current conditions (VaR) and under a stress period (SVaR).The intent of SVaR is to ensure that a minimum amount of capital is held against stress periods. Given the recent market volatility resulting from COVID-19, VaR has increased significantly to reach SVaR levels. OSFI's view is that, under the treatment that existed prior to its March 27 release, capital requirements were excessive and an adjustment to SVaR multipliers was deemed to be necessary.

  2. How are VaR and SVaR multipliers determined?

    Under the market risk framework, the minimum VaR and SVaR multiplier levels are 3. These levels are then subject to individual upward adjustments that reflect OSFI's assessment of the quality of an institution's risk management system, as well as the performance of its VaR and SVaR models. If OSFI deems there to be deficiencies, an institution's multiplier level can be increased.

  3. How long will the reduction in sVaR multipliers be in effect?

    OSFI will continue to monitor institutions' VaR and SVaR reports on a weekly basis and will consider removing the temporary reduction in SVaR multipliers when it deems that prevalent market conditions have returned back to normal levels and the heightened volatility present in historical minimum observation periods used for calculating regulatory VaR (one year as per CAR Chapter 9) has subsided (ie, at earliest April 2021).

  4. Why are you requiring institutions to remove their FVA hedges from market risk capital requirements now?

    The removal of the Funding Valuation Adjustment (FVA) hedges addresses an asymmetry that was present in the market risk rules where institutions were not permitted to include FVA sensitivities into their VaR models (since they are not market risk instruments) to offset the FVA hedges (which are market risk instruments and therefore included in the model).

    FVA movements are typically hedged by institutions for accounting purposes to minimize earnings volatility. As markets become more volatile, the FVA hedges, which are not offset by the FVA sensitivities in the VaR models, result in higher capital requirements, which is not commensurate with the underlying risk.

  5. Will backtesting breaches caused by market volatility related to COVID-19 automatically result in an increase in an institution's VaR multiplier?

    Since the start of the pandemic, OSFI has been closely monitoring the market risk VaR breaches caused by major market movements across all risk factors (equity, interest rate, FX and commodities) and at the Total VaR level. OSFI believes the backtesting breaches for this period have largely been caused by the unexpected and elevated market volatility and may not reflect market risk modelling deficiencies.

    As such, OSFI will exercise its supervisory discretion, as permitted in CAR Chapter 9 for backtesting when financial markets are subjected to a major regime shift and allow institutions subject to market risk capital requirements and using internal models to maintain the VaR multipliers they were subject to at the end of the last fiscal quarter. This means that the VaR multipliers will temporarily not be subject to automatic increases due to breach count reaching the yellow or red backtesting zones. To clarify, this is independent of the decrease in the Stressed VaR multipliers.

    OSFI will continue to monitor the market volatility as well as institutions' market risk model performance. The VaR multipliers may be modified at any time based on evolving market conditions, model performance and/or other relevant factors.

  6. In the event there is another period of extreme market volatility that causes additional backtesting breaches, will OSFI change its stance towards VaR multipliers (i.e. increase VaR multiplier or require institutions to apply internal scalars to their VaR)?

    Pursuant to the flexibility embedded in CAR Chapter 9 (see question above), VaR multipliers will not be subject to automatic increases when caused by significant market volatility nor would OSFI require institutions to apply internal scalars to their VaR. As noted previously, OSFI continues to monitors market volatility and institutions' market risk model performance, and reserves the right to modify VaR multipliers when circumstances warrant it.

Leverage Ratio

  1. Are institutions' authorized leverage ratios still in force, or only the 3% regulatory minimum?

    Institutions are still required to maintain leverage ratios above their authorized leverage ratios at all times.

  2. What is the difference between the regulatory minimum leverage ratio and the authorized leverage ratio of the institution?

    All institutions are expected to maintain a leverage ratio that meets or exceeds 3% at all times. The Superintendent can also prescribe that an institution maintain an authorized leverage ratio higher than 3%.

  3. What kind of transition period will OSFI allow to reinstitute leverage ratio operating buffers once the current stressed environment is over?

    Once the stressed environment ends, OSFI will ensure that sufficient time is allowed for institutions to build up operating buffers above their authorized leverage ratios.

  4. How will OSFI communicate that operating buffers should be reinstituted?

    This will occur over time. Institutions will be informed of supervisory expectations through their regular ongoing discussions with their OSFI lead supervisor.

  5. What specific asset classes are included in the definition of sovereign securities and central bank reserves excluded from the leverage ratio? Does it include provincials, municipals, and Government of Canada backed securities such as Canada Mortgage Bonds (CMBs)?

    Assets that can be excluded are limited to central bank reserves (including cash held in accounts at the Bank of Canada), and securities issued by sovereigns, including sovereigns in other jurisdictions. Eligible securities should be excluded from the leverage ratio at their full on-balance sheet value (i.e., not reflecting any haircuts or limits they would be subject to under the LCR). Securities that are not issued by a sovereign, including provincial and municipal securities and securities guaranteed by sovereigns (such as CMBs and National Housing Act Mortgage-Backed Securities), are not eligible to be excluded from the leverage ratio.

  6. How should institutions report the temporary exemptions (i.e. central bank reserves and sovereign issued securities) from the exposure measure of their leverage ratios on the Leverage Requirements Return?

    For the Leverage Requirements Return, institutions should reflect their exemptions in total on-balance sheet assets (DPAs 1101 and 1108). That is, central bank reserves and sovereign issued securities should be removed from the total on-balance sheet assets. Total on-balance sheet assets will be reconciled to the accounting balance sheet via DPA 1605. Institutions should reflect the total exemptions made to the exposure measure in DPA 1101 via DPA 1605 as a negative number.

  7. Can reverse repos backed by-eligible securities also be excluded temporarily from the leverage exposure measure?

    For reverse repos backed by eligible securities, only the eligible security can be excluded by the institution holding it on its balance sheet. Exclusions should be consistent with how assets are treated under the leverage ratio and any relevant accounting frameworks.

  8. What is considered a central bank reserve for purposes of the leverage ratio exclusion?

    The definition of central bank reserves is meant to follow the guidance included in OSFI's LAR Guideline (i.e., Chapter 2, footnote 14). Balances that an institution has in its settlement account at the Bank of Canada should be included in the central bank reserves amount. The exclusion of central bank reserves is not limited to Canadian central bank reserves only as it is intended to cover all central bank reserves an institution holds across jurisdictions, which would also include, for example, reserves institutions hold with the US Federal Reserve.

  9. Will OSFI consider extending the leverage ratio exclusion of sovereign-issued securities and central bank reserves beyond April 30, 2021?

    The situation will be reassessed closer to April 30, 2021 to determine if the exclusion should be maintained longer. OSFI will ensure that sufficient time is allowed for institutions to reinstitute excluded assets into the leverage ratio exposure measure.

  10. Do the assets that are excluded from the leverage ratio have to form a part of an institution's HQLA pool?

    Assets that are excluded from the leverage ratio do not have to form part of an institution's HQLA pool (e.g. the operational requirements applied to HQLA in the LCR do not apply to the leverage ratio exclusions).

  11. Is it mandatory for institutions to exclude sovereign-issued securities and central bank reserves from the leverage ratio?

    OSFI expects all institutions to exclude eligible assets from the leverage ratio in order to support consistent application across institutions and institutions' ability to supply credit to the economy.

  12. How is OSFI monitoring the use of lending capacity freed up by the leverage ratio exclusions?

    OSFI expects that institutions will use the additional lending capacity to support Canadian businesses and households during this period of stress. OSFI continues to have frequent discussions with institutions and is monitoring their capital and liquidity positions as well as exposures. OSFI expects institutions to be closely tracking their credit portfolios and reporting to OSFI on a regular basis on the developments in those portfolios in response to the leverage ratio exclusions and other support programs and initiatives launched recently by the Government of Canada.

  13. How should exposures acquired through participation in the Federal Reserve Bank of Boston's Money Market Mutual Fund Liquidity Facility (MMLF) and the Federal Reserve System's Paycheck Protection Program Lending Facility (PPPLF) be reported on the Leverage Requirements Return and the Basel Capital Adequacy Reporting (BCAR) return?

    For the Leverage Requirements Return, institutions should reflect the exemption of these exposures in total on-balance sheet assets (DPAs 1101 and 1108). That is, exposures acquired through the MMLF and the PPPLF should be removed from the total on-balance sheet assets. Total on-balance sheet assets will be reconciled to the accounting balance sheet via DPA 1605. Institutions should reflect the total exemptions made to the exposure measure in DPA 1101 via DPA 1605 as a negative number.

    For the Basel Capital Adequacy Reporting (BCAR) return, institutions should reflect the exemption of these exposures in "Total on-balance sheet assets for purposes of capital ratios" in Schedule 45. That is, exposures acquired through the MMLF and PPPLF should be removed from DPA 8924 in Schedule 45 of BCAR. Total on-balance sheet assets will be reconciled to the accounting balance sheet via DPA 8936. Institutions should reflect the total exemptions made to the exposure measure in DPA 8924 via DPA 8936 as a positive number.

  14. Will the exclusion of MMLF exposures from the LR be allowed to continue indefinitely?

    This treatment will continue as long as the MMLF is operational.

  15. Can exposures acquired through the Federal Reserve System's Paycheck Protection Program Lending Facility (PPPLF) be excluded from the leverage ratio?

    Exposures acquired through participation in the PPPLF can be excluded from risk-based capital and leverage ratios.

  16. Will OSFI require any public disclosures related to the leverage ratio exclusions?

    D-SIBs should include all leverage ratio exclusions in the "other adjustments" line in the LR1 template of OSFI's Guideline D-12. Non-D-SIBs should exclude the leverage ratio exclusions from line 1 in the LR2 template of OSFI's Guideline D-12 and add a footnote to explain that the adjustment was made due to guidance issued by OSFI in April 2020.

Margin Requirements

  1. Why has OSFI extended the deadline for the implementation date of the final two phases of the initial margin requirements during a time of financial stress?

    The extension will allow FRFIs to redeploy resources currently preparing for the next phase of the initial margin requirements to respond to the immediate impact of COVID-19. In addition, given the global nature of the derivatives market and the agreement by members of the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) to extend the deadline for the final two phases, OSFI believes that extending the deadline will allow for a smoother and coordinated implementation of the initial margin requirements around the world.

Domestic implementation of Basel III

  1. Why has OSFI delayed the FRTB and CVA frameworks one-year beyond the rest of the Basel III reform package?

    The delay in the Fundamental Review of the Trading Book (FRTB) framework is recognition of the complexity of the revised market risk framework, which was finalized later than the rest of the Basel III framework, and the required infrastructure enhancements needed to adhere to it. Regarding Credit Valuation Adjustment (CVA), the Basel Committee on Banking Supervision recently completed a consultation on targeted revisions to the framework. As this framework is not yet complete internationally, OSFI is delaying the domestic implementation to 2024.

  2. Does the Basel implementation delay include the phase-out of non-qualifying instruments?

    No. OSFI has only delayed the implementation of the revisions to the Basel III framework finalised in December 2017. The phase-out of non-qualifying capital instruments, continues to proceed and will conclude, as scheduled, on November 1, 2021 for institutions with an October 31 fiscal year-end or January 1, 2022 for institutions with a December 31 fiscal year-end.

  3. Do the measures announced by OSFI affect the redemption of innovative tier 1 instruments under regulatory event calls?

    No. The relief measures announced by OSFI do not impact the phase-out of non-qualifying capital instruments issued by banks (or insurers). Where a bank has publicly disclosed its intent to redeem a non-qualifying instrument, that redemption would proceed subject to prior OSFI approval and standard notice requirements.

  4. Does the delay in implementing Basel III requirements include the TLAC implementation timelines for D-SIBs?

    No. OSFI's announced relief measures do not include any changes to the timeline – November 1, 2021 - for Canadian D-SIBs to meet their target TLAC requirements.

  5. In paragraph 150 of Chapter 4 of the 2019 CAR Guideline, institutions may apply a scalar of 0.7 to the SA-CCR exposure amounts that enter into the formulas described in paragraphs 151 and 157 (the CVA capital charge) between the first fiscal quarter of 2019 and the fourth fiscal quarter of 2021 (as the revised CVA framework was originally to be implemented in Q1 2022). Since the implementation of this framework has now been delayed until the beginning of fiscal Q1 2024, is the use of the 0.7 scalar also extended until the end of fiscal Q4 2023?

    Yes, the 0.7 scalar mentioned in paragraph 150 of Chapter 4 of the 2019 CAR Guideline can continue to be used by institutions until the end of the fourth fiscal quarter of 2023.

Small and medium-sized bank proportionality initiative

  1. What is happening with your consultation and framework for small banks?

    OSFI is delaying the timing for the implementation of the small and medium-sized bank (SMSB) Capital and Liquidity framework to the beginning of Q1 2023 in line with the delay in the domestic implementation of Basel III. OSFI will also delay the consultation work on Pillar 2 and Pillar 3 capital and liquidity requirements for SMSBs.

  2. Will the delay impact any applications by banks to use the advanced internal ratings-based approach for credit risk?

    The delayed implementation of the capital and liquidity requirements for SMSBs was done to ensure continued alignment of the SMSB proportionality initiative with the timing of Basel III reforms, as well to help reduce some of the operational stress on smaller institutions. OSFI's announcement did not relate to the status of any application for a bank to use an Advanced Internal Ratings Based approach (AIRB).

  3. How will a delay of Basel III and/or the proportionality initiative impact SMSBs?

    The delay of the Basel III and/or proportionality initiative was incorporated to allow institutions flexibility to focus on their resilience efforts to address situations borne out of the current economic environment. The impacts of the Basel III and proportionality initiatives will vary by institution depending on the specific business model. The proportionality work is not focused on providing capital or liquidity relief to institutions, it is about ensuring that the requirements are more "fit for purpose" in the sense that risk sensitivity is improved and, where possible, complexity is reduced.

Liquidity

  1. Is the statement you made that Liquidity Coverage Ratios (LCRs) can go below 100% a signal that institutions are in trouble?

    OSFI expects that institutions' pools of liquid assets to be used during a period of financial stress, even if that means an institution falls below a 100% LCR level. This is consistent with previous statements OSFI has made over time where we have encouraged institutions to use their liquidity buffers as appropriate.

  2. The March 27, 2020 press release notes that the LCR minimum standard is permitted to drop below 100%. Does OSFI have the same expectation for the Net Stable Funding Ratio (NSFR)?

    The NSFR is designed as a structural measure (rather than a cash flow coverage measure) such that institutions maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. OSFI's current expectation is that the ratio should be equal to at least 100% on an ongoing basis. Similar to the expectations related to risk-based capital ratios and the leverage ratio, OSFI encourages institutions to use operating buffers above the NSFR minimum requirement that they have generated in normal times as a source of additional flexibility in times of stress.

  3. How does lowering the LCR facilitate lending?

    By using the pool of high-quality liquid assets, and thus lowering its LCR ratio, an institution is able to convert securities / market instruments into cash (through sale or repo). The institution is then able to use that cash to cover outflows, which could include generating new loans to customers.

  4. Is OSFI modifying its liquidity rules to accommodate the new/revised Bank of Canada facilities?

    As the Bank of Canada creates new and revises existing liquidity facilities and programs, OSFI reviews these to see how they interact with the liquidity rules. The related clarifications incorporated in OSFI's press releases (e.g. the treatment of secured funding transactions with central banks, and the treatment of the Bank of Canada's Bankers' Acceptance Purchase Facility) ensure institutions have clear guidance on how those facilities and programs are expected to be treated in OSFI's liquidity framework.

  5. What, in practice, does it mean to extend the LCR definition of "hardship" to include situations borne out of the current exceptional circumstances?

    Generally, institutions do not need to include outflows in the LCR for retail and small business term deposits if the remaining term is greater than 30 days (i.e. is outside the LCR horizon). However, if an institution allows withdraws without applying a penalty, or despite a clause that says the depositor has no legal right to withdraw, the entire category of term deposits should be treated as demand deposits and be subject to an LCR outflow. The exception is where there are exceptional circumstances that would qualify as hardship (i.e. pre-defined and documented situations such as death, catastrophic illness, loss of employment, or bankruptcy of the depositor). OSFI is extending the definition of hardship to cover situations that align with existing guidance to ensure institutions can support their retail and small business customers' current needs without being penalized within their regulatory liquidity metrics.

  6. In practice, what does the NSFR treatment you clarified relating to assets encumbered as part of central bank liquidity operations during stress periods mean?

    Part of the guidance reiterates an expectation that institutions can apply lower Required Stable Funding (RSF) factors to assets that are pledged to the central bank in times of stress. In addition, OSFI has incorporated a maximum RSF factor of 50% for these transactions. In practice, this temporary treatment increases incentives for institutions to utilize the Bank of Canada's term secured financing facilities as the funding requirement on the assets pledged is more in line with the funding credit institutions receive. This is particularly the case for the expanded set of collateral types that the Bank of Canada has incorporated (e.g. own-issued covered bonds, own-issued CP, etc.). This remains in line with underlying incentives in the NSFR framework that institutions look to term out their funding sources.

  7. Does the treatment of assets pledged for exceptional central bank liquidity operations apply to term repo operations conducted with central banks in other jurisdictions (such as the US Federal Reserve and European Central Bank), so long as they constitute exceptional liquidity operations to manage the COVID-19 crisis?

    Yes, institutions conducting term repo operations with the domestic central bank of their subsidiaries can receive the same Required Stable Funding (RSF) factor for the assets pledged that is applied to an equivalent asset that is unencumbered, including application of the 50% RSF cap.

  8. OSFI previously communicated that for loan payment deferrals granted by DTIs, these loans will continue to be treated as performing loans under the CAR Guideline for the duration of the payment deferral. Within the NSFR, does this mean that such loans will not attract a 100% RSF for non-performing loans and instead attract the RSF of a performing loan?

    Yes, during the period of a loan payment deferral, institutions should continue to treat such loans as performing and categorize these loans accordingly within the NSFR (based on counterparty type, term to maturity, etc.).

  9. How should amounts of bankers' acceptances provided into the Bank of Canada's Bankers' Acceptance Purchase Facility (BAPF) be reported in the LCR and NCCF returns?

    Institutions should exclude the amount of BAs sold into the BAPF from the LCR return (i.e. these should not be reported in DPA 21230 given the weight of 1.00 assigned to that DPA). These amounts should instead be tracked separately and be available to be reported to OSFI upon request. Maturing BAs that are not utilized as part of the BAPF should continue to be reported in DPA 21230 (weighted at 1.00) within the LCR return. Similar to the LCR return, BAs sold into the BAPF should be excluded from the NCCF return.

  10. How should amounts related to the Bank of Canada's Standing Term Liquidity Facility (STLF) be reported in the NSFR return?

    The liability related to borrowing from the STLF should be recorded in DPA 131330. The unweighted amount of assets pledged should be reported in their respective categories (rows) and maturity columns ("Amount"). The weighted amount related to these assets should reflect the 50% RSF cap in the "Calculated RSF" columns, where applicable. Validation rules on the NSFR return will be temporary disabled or overridden to allow for the 50% RSF cap treatment.

  11. How should amounts related to term repo operations with central banks be reported in the NSFR return?

    The liability related to borrowing from term repo operations with central banks should be recorded in DPA 131330, DPA 151330, and DPA 171330 for terms of less than 6 months, between 6 months and less than one year, and greater than 1 year, respectively. The unweighted amount of assets pledged should be reported in their respective categories (rows) and maturity columns ("Amount"). The weighted amount related to these assets should reflect the 50% RSF cap in the "Calculated RSF" columns, where applicable. Validation rules on the NSFR return will be temporary disabled or overridden to allow for the 50% RSF cap treatment.

  12. OSFI is providing flexibility within the Net Stable Funding Ratio (NSFR) where assets pledged for exceptional central bank liquidity operations are permitted to receive the same Required Stable Funding (RSF) factor that is applied to an equivalent asset that is unencumbered. Would this treatment extend to other exceptional liquidity operations that are not administered by the Bank of Canada but are instead administered by other agencies of the Government of Canada? If so, which programs would qualify for this flexibility?

    The NSFR treatment outlined in OSFI's March 27 letter is not only limited to operations with the Bank of Canada. Assets pledged to obtain funding from exceptional liquidity facilities or programs extended by the Government of Canada in response to the COVID-19 crisis can also be assigned the RSF of an asset that is unencumbered. At this time, this flexibility can be extended to the Insured Mortgages Purchase Program (IMPP) administered by CMHC.

  13. How should transactions involving the Insured Mortgages Purchase Program be reported in the NSFR?

    The NHA MBS sold into the IMPP program should be reported in DPAs 133240, 153240, or 173240 (i.e. RSF factor as "unencumbered") based on the remaining maturity of the security. The corresponding liability should be recorded as funding from a Sovereign, in DPAs 131340, 151340, or 171340, based on the remaining maturity of the liability.

  14. How would own-issued covered bonds pledged to the Bank of Canada be reflected in the NSFR?

    Assets pledged to the Bank of Canada for exceptional liquidity operations should be assigned the RSF factor of an asset that is unencumbered, up to a maximum RSF of 50%. For own-issued covered bonds pledged to the Bank of Canada, institutions should report the related mortgage assets in the underlying covered bond pool in the NSFR, and assign them a 50% RSF factor. Any remaining mortgage assets supporting covered bonds that are not pledged to the Bank of Canada will continue to attract the RSF for mortgages under the current OSFI NSFR rules (i.e. not capped at 50% RSF).

  15. How is the Canada Emergency Business Account program to be reflected in the calculation of the NSFR?

    Consistent with the leverage ratio and risk-based capital treatments, loans through the Canada Emergency Business Account (CEBA) program and their corresponding liabilities can be excluded from institutions' NSFRs.

  16. How should amounts related to an institution's participation in the Federal Reserve Bank of Boston's Money Market Mutual Fund Liquidity Facility (MMLF) and the Federal Reserve System's Paycheck Protection Program Lending Facility (PPPLF) be reflected in an institution's consolidated liquidity requirements?

    The amounts institutions receive from these funding facilities and the assets used to secure such funding should be excluded from the calculation of an institution's total net cash outflow amount in the LCR and NCCF, and also be excluded from the NSFR computation.

  17. How should loans funded by an institution but issued in collaboration with federal agencies' temporary lending programs (e.g. Export Development Canada's Business Credit Availability Program guaranteed loans, Business Development Bank of Canada's Co-lending and Mid-Market Junior Financing Program) be reflected in the calculation of the LCR?

    The portion of these loans funded by an institution should be reflected as loans to small business customers or to non-financial wholesale counterparties, as appropriate. Given the federal agency sponsorship, an institution may recognize 100% of contractual inflows once they roll into the LCR's 30 day window. As the LCR template cannot currently accommodate these loans with a 100% inflow assumption, institutions should gross up the reported unweighted amount in a way that results in the correct reporting of the weighted amount. Specifically for these types of loans DPA 22202 and/or DPA 22203 should be grossed up to recognize 100% inflows in DPA 72202 and/or DPA 72203, respectively.

Interest Rate Risk in the Banking Book (IRBBB)

  1. Is there a concern that the one-year delay in the introduction of revisions to Guideline B-12 for SMSBs will leave institutions' exposed to increased IRRBB?

    No. The delay in the implementation date of revisions to Guideline B-12 for SMSBs was incorporated to allow institutions to focus on their resilience efforts to address situations borne out of the current economic environment. OSFI already has sound risk management principles associated with IRRBB, that are articulated in the current Guideline B-12, and which will remain in place for SMSBs until the revised January 2022 implementation date of Guideline B-12.

Covered Bonds

  1. Why did OSFI increase the covered bond limit, and how was the 10% level chosen?

    During the current period of market-wide stress, increasing the limit is important to help provide banks additional capacity to access a stable source of funding through the Bank of Canada. The 10% level provides each issuer a substantial additional amount of capacity while remaining prudent. The calibration of the limit also incorporates the potential for changes in overcollateralization during times of stress. OSFI is of the view that the 5.5% limit for issuances to the market remains appropriate.

  2. How will registered covered bond issuers be able to return below the 5.5% limit given that the increase is temporary in nature?

    Although the aggregate limit of total assets pledged for covered bonds has increased temporarily to 10%, the 5.5% limit continues to apply to covered bonds issued to the market and institutions are expected to continue to manage this limit accordingly. OSFI expects that covered bonds levels will return below this threshold when market funding conditions permit, and that institutions will provide a plan to OSFI outlining their proposed approach and timing to return below the required threshold. Once markets have stabilized, registered covered bond issuers could replace amounts that had been temporarily funded by covered bonds sold to the Bank of Canada though other funding instruments, such as senior unsecured bonds or deposits. Registered covered bond issuers could also sell covered bonds to the market to the extent that the issuer has room available within the 5.5% limit. OSFI and the Bank of Canada will closely monitor registered covered bond issuers' utilization of Bank of Canada liquidity facilities with the goal of supporting a smooth transition away from these extraordinary funding sources.

  3. The maximum term of the underlying repo that the Bank of Canada is offering is two years. If the covered bonds used as collateral have a maturity of longer than two years, what will be the treatment of these covered bonds with respect to the limit?

    The 10% limit applies to all outstanding covered bonds; this includes self-issued covered bonds used as collateral in repo transactions with the Bank of Canada and those that are not. If a covered bond was previously used as collateral, but is no longer used in such manner, assets pledged for this covered bond will continue to be measured against the 10% limit as long as the covered bond is outstanding.

Foreign Bank Branches (FBBs)

  1. Are there any specific measures targeted to foreign bank branches (FBBs) - such as, FBB deposit requirements?

    No, there are no regulatory measures specifically targeted to foreign bank branches. FBBs are encouraged to reach out to their lead supervisor should they have any questions about their operations or OSFI requirements in light of the current environment.

Macro Stress Testing (MST)

  1. Are enhancements to the macro stress test delayed?

    OSFI and Bank of Canada make updates to the requirements of the exercise periodically in the normal course of running this program; however, these planned enhancements can be deferred without negatively affecting the program. The enhancements are mainly related to gathering incrementally more data in certain specific areas, such as across Provisions for Credit Losses (PCL), RWA and revenue projections, but as the program already collects significant information in these areas, deferring these enhancements was a reasonable step to take and will not reduce the effectiveness of the program.

March 30th letter on the Capital treatment for exposures acquired through the new Government of Canada programs

  1. For the Business Development Bank of Canada (BDC) co-lending program, could OSFI clarify whether the full amount or only the 20% portion funded by the bank should be included in the loan exposure aggregation for the retail small business $1.25 million threshold?

    Consistent with the March 30th letter, under the BDC co-lending program only the DTI's 20% portion is considered an exposure to the borrower. This same exposure would apply for the purpose of the $1.25 million threshold under the standardized approach to credit risk (as set out in paragraph 25 of Chapter 3 of the 2019 Capital Adequacy Requirements (CAR) Guideline) and under the internal ratings based approach (as set out in paragraph 29 of Chapter 6 of the 2019 CAR Guideline).

Compensation

  1. In the March 13 announcement, OSFI provided an expectation that the increased capacity be used for lending and not for increasing dividends, employee compensation or share buy-backs. What is OSFI considering when it comes to distributions related to employee compensation?

    Employee compensation was referring to the total compensation packages for senior management, where significant portions are often tied to performance bonuses. This expectation was not intended to be applied to the entire institution.

  2. How will OSFI define senior management for purposes of halting increases in compensation?

    OSFI will rely on each institution to determine what the most appropriate definition is for their own institution. However, OSFI would refer Canadian incorporated institutions to the definition of Senior Management included in the OSFI Corporate Governance Guideline for further clarifications.

Dividends

  1. In the March 13 announcement, OSFI set the expectation for all federally regulated financial institutions (FRFIs) that dividend increases and share buy-backs be halted for the time being. How does OSFI define a dividend increase?

    An increase in dividends is defined as an increase in the total dollar amount of dividends paid after March 13, 2020 compared to the last approved regularly scheduled dividend (be it quarterly or less frequent) which occurred prior to March 13.

  2. Does OSFI's expectation regarding the halt on dividend increases announced on March 13 apply to all federally regulated financial institutions (FRFIs)?

    OSFI's expectation regarding the halt on dividend increases applies to all FRFIs, except for those that are subsidiaries of other FRFIs. Notwithstanding, OSFI may raise concerns with a dividend increase by a FRFI that is a subsidiary of another FRFI after considering various factors including the impact on the FRFI subsidiary's capital and liquidity ratios.

  3. How does OSFI define a 'regularly scheduled dividend'?

    A regularly scheduled dividend is generally defined as a cash payment by a federally regulated financial institution (FRFI) to its shareholders at specified times of the year. To be considered regularly scheduled, the FRFI must show a consistent dividend payment pattern.

  4. Does the limitation on dividend increases announced on March 13 apply to all types of dividends?

    The limitation on dividend increases targets cash dividends. Non-cash dividends such as stock dividends are not included in the limitation where they have the effect of maintaining or improving the total dollar value of the financial institution's common equity.

  5. Following the announcement on March 13, can a federally regulated financial institution (FRFI) maintain its dividend per share amount after a stock split without it being considered a dividend increase?

    A FRFI would need to adjust its dividend per share amount after a stock split so as not to increase the total amount of dividends paid compared to the last approved regularly scheduled dividend prior to March 13.

  6. Following the announcement on March 13, can a federally regulated financial institution (FRFI) increase its dividend per share amount following a reverse stock split?

    A FRFI may increase its dividend per share amount following a reverse stock split so long as it does not result in an increase to the total dollar amount of dividends paid compared to the last approved regularly scheduled dividend prior to March 13.

  7. A federally-regulated financial institution (FRFI) increased its common share capital (through a capital raise, stock dividend, dividend reinvestment plan (DRIP), etc.). Following the announcement on March 13, can the FRFI maintain the same dividend per share without the proposed dividend being considered a dividend increase?

    A FRFI can maintain the same dividend per share amount so long as the increase in the total dollar amount of dividends paid is less than or equal to the total dollar increase in common share capital.

  8. A federally regulated financial institution (FRFI) uses a dividend payout ratio to determine its dividend amount. Following the announcement on March 13, can the FRFI continue to use the dividend payout ratio methodology to determine its dividend amount?

    A FRFI can continue to use its dividend payout ratio methodology, however, the total dollar amount of dividend will be limited to the total dollar amount of the last approved regularly scheduled dividends prior to March 13, 2020.

  9. Following the announcement on March 13, 2020, would an increase in a preferred share dividend payment that is caused by a scheduled reset of the dividend rate be considered a dividend increase and subject to OSFI's limitations?

    An increase in the total dollar amount of a preferred share dividend, compared with the last approved regularly scheduled dividend prior to March 13, 2020, that is caused by a scheduled reset of the dividend rate after March 13, 2020, as specified in the contractual terms of the capital instrument and not at the issuer's discretion, would be exempt from OSFI's expectations regarding dividend increases as set out in the March 13, 2020 announcement. Dividends or coupons on common shares, preferred shares, and other Additional Tier 1 capital instruments otherwise continue to be subject to the expectations on dividend increases set out in the March 13, 2020 announcement.