Revised Covered Bond Limit Calculation

Document Properties

  • Type of Publication: Letter
  • Date: December 19, 2014
  • To: All Deposit-Taking Institutions Issuing Covered Bonds

As a result of adopting the Basel Leverage Ratio in the first quarter of 2015, OSFI needs to revise the calculation of the covered bond limit - first released in a letter to deposit-taking institutions dated June 27, 2007. The revision has been designed to minimize the impact on bank covered bond issuance and to limit the reporting burden on issuing banks.

Going forward, OSFI will use a measure of total assets that is broadly equivalent to the Asset-Capital Multiple (ACM) numerator that has been used up to now. This means that, beginning in Q1 2015, total assets will be defined using a select number of data points from the 2015 Leverage Requirements Return (LRR) and the 2015 Basel Capital Adequacy Return (BCAR). See the attached appendix for further details on how to compute total assets for purposes of the covered bond limit.

In addition, OSFI will continue to impose the following conditions:

  1. Covered bonds must not, at the time of issuance, make up more than four per cent (4%) of the total assets of the Deposit-Taking Institution (DTI) as described in the appendix. If at any time after issuance the four per cent (4%) limit is exceeded, the DTI must immediately notify OSFI. Excesses due to factors beyond the control of the issuing institution, such as foreign exchange fluctuations, will not require the DTI to take action to reduce the amount outstanding. For other excesses, the DTI must provide a plan showing how the DTI proposes to eliminate the excess quickly.
  2. OSFI expects current pledging policies of DTIs to be amended to specifically take into account the issuance of these instruments, consistent with the limits and conditions contained in this letter. OSFI also expects board or committee approval of these specific changes prior to the issuance of covered bonds.

Questions may be addressed to Patrick Tobin, Capital Division at patrick.tobin@osfi-bsif.gc.ca or by phone at 613 990-1258.

Yours truly,

Mark Zelmer
Deputy Superintendent

Appendix

For purposes of the calculation of the covered bond limit, total assets equals (all numbers in the formula below are datapoint references from OSFI regulatory returns):

  • 1101 + 1404 + 1406 + 1407 + 1411 + 1413 + 2107 + 2123 - 1102 - 1105 (from the LRR)

  • (1055 - 1041) - 1085 - 1103 (from Schedule 1A of BCAR)

  • + 1612 + 1613 (from Schedule 3 of the BCAR)

  • + 5615 + 5707 + 5799 + 5618 + 5710 + 5802 (from Schedule 39 of BCAR)

  • - 8927 - 8928 - 8930 - 8931 (from Schedule 45 of BCAR)