Office of the Superintendent of Financial Institutions
Subsection 485(1) and 949(1) of the Bank Act (BA) and subsection 473(1) of the Trust and Loan Companies Act (TLCA) require banks, bank holding companies and trust and loan companies, respectively, to maintain adequate and appropriate forms of liquidity.
The LAR Guideline is not made pursuant to subsection 485(2) or 949(2) of the BA or subsection 473(2) of the TLCA. However, the liquidity metrics set out in this guideline provide the framework within which the Superintendent assesses whether a bank, a bank holding company or a trust and loan company maintains adequate liquidity pursuant to the Acts. For this purpose, the Superintendent has established two minimum standards: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). These standards – in conjunction with additional liquidity metrics where OSFI reserves the right to apply supervisory requirements as needed, including the net cumulative cash flow (NCCF), the liquidity monitoring tools and the intraday liquidity monitoring tools – when assessed as a package, provide an overall perspective of the liquidity adequacy of an institution. The LAR Guideline should be read together with the Basel Committee on Banking Supervision's (BCBS) Principles for Sound Liquidity Risk Management and Supervision and OSFI's Guideline B-6: Liquidity Principles. As such, OSFI will conduct detailed supervisory assessments of both the quantitative and qualitative aspects of an institution's liquidity risk, as presented in the LAR Guideline and Guideline B-6, respectively. Notwithstanding that a bank, a bank holding company or a trust and loan company may meet the aforementioned standards, the Superintendent may by order direct a bank or bank holding company to take actions to improve its liquidity under subsection 485(3) or 949(3), respectively, of the BA or a trust and loan company to take actions to improve its liquidity under subsection 473(3) of the TLCA.
OSFI, as a member of the BCBS, participated in the development of the international liquidity framework, including Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (January 2013), Basel III: the Net Stable Funding Ratio (October 2014) and Monitoring tools for intraday liquidity management (April 2013). This domestic guidance is based on the Basel III framework, supplemented to include additional OSFI-designed measures to assess the liquidity adequacy of an institution.
Where relevant, the Basel III paragraph numbers are provided in square brackets at the end of each paragraph referencing material from the Basel III framework. Some chapters include boxed-in text (called OSFI Notes) that set out how certain requirements are to be implemented by Canadian banks, bank holding companies and trust and loan companies, collectively referred to as 'institutions'.
The Liquidity Adequacy Requirements (LAR) for banks, bank holding companies and trust and loan companies are set out in six chapters, each of which has been issued as a separate document. This document, which contains Chapter 1 – Overview, should be read together with the other LAR chapters which include:
Federally regulated deposit-taking institutions that are themselves subsidiaries and that i) do not have a parent that is either a Domestic Systemically Important Bank (D-SIB) or a foreign bank subsidiary and ii) whose operations are strictly in Canada and such operations are primarily Canadian dollar-related, do not need to adhere to the minimum standards and reporting requirements outlined in the LAR Guideline. However, the federally regulated parent deposit-taking institution of such an exempted subsidiary institution needs to comply with the requirements outlined in paragraph 5 below, in particular it needs to demonstrate that systems are in place to show the cash flow profiles of such legal entities and that such information can be provided to OSFI upon request.
OSFI will not require separate reporting of data related to the concentration of funding and available unencumbered assets monitoring tools. Rather, OSFI will utilize information submitted as part of other aspects of regulatory reporting (e.g. NCCF, U3 return, etc.) to assess the information elements requested under these monitoring tools.
The scope of application for the intraday liquidity monitoring tools will be limited to OSFI- regulated direct clearers only. OSFI will not require that such institutions report on the suite of intraday liquidity monitoring tools at this time. However, OSFI will continue to review the applicable implementation date for these metrics and will discuss the proposed timing of rollout with affected institutions in advance of taking a final decision.
Following the format: [BCBS Jan 2013, para X], [BCBS Oct 2014, para X] and [BCBS Apr 2013, para X].
Return to footnote 1 referrer
Return to footnote 2 referrer
Return to footnote 3 referrer
Return to footnote 4 referrer