Document Properties
- Type of Publication: Letter
- Date: October 30, 2018
- Reference: Guideline for Banks/BHC/T&L/CRA
- To:
- Banks
- Bank Holding Companies
- Federally Regulated Trust and Loan Companies
- Cooperative Retail Associations
OSFI is releasing the final version of its Leverage Requirements (LR) guideline for implementation in Q1 2019. The revisions will align the LR guideline with modifications made to Chapter 4 (Settlement and Counterparty Risk) and Chapter 7 (Securitization) of the Capital Adequacy Requirements (CAR) guideline.
The LR guideline now incorporates the Standardized Approach to Counterparty Credit Risk (SA-CCR) for calculating derivatives exposures. This approach will replace the Current Exposure Method for computing counterparty credit risk exposure amounts for derivatives. The new method will align with the implementation of SA-CCR under Chapter 4 of the CAR guideline in Q1 2019.
The revised LR guideline also includes changes to the treatment of securitized assets that align with revisions to the operational requirements for recognition of significant risk transfer (SRT) in Chapter 7 of the CAR guideline. OSFI has also aligned treatment of the credit conversion factors for off-balance sheet securitization exposures with those included under revisions to Chapter 7 of the CAR guideline.
The December 2017 Basel III reforms include revisions to the Basel III leverage ratio framework, including a buffer for global systemically important banks (G-SIBs), as well as other technical refinements to the leverage ratio exposure measure. OSFI will consider these revisions separately as part of the domestic implementation of the Basel III reforms, and will consult stakeholders as part of the consultation process for any future changes to the LR guideline.
The attached table in Annex 1 summarizes comments received and provides an explanation of how the comments have been addressed in the Guideline. We thank those who participated in the consultation process.
Questions concerning these changes can be sent to Catherine Girouard, Director, Capital Division by email at catherine.girouard@osfi-bsif.gc.ca.
Yours truly,
Carolyn Rogers
Assistant Superintendent
Regulation Sector
Annex 1: Summary of Comments Received and OSFI Response
| Comment |
OSFI Response |
| Treatment of open maturity securities financing transaction (SFT) exposures |
| We ask that OSFI consider allowing netting of cash payables and receivables associated with open maturity SFTs. |
OSFI has amended its treatment of open maturity SFT exposures in the LR guideline to reflect the economic similarity between open maturity and overnight SFTs.
Institutions will be allowed to consider open-maturity secured transactions as overnight trades for the purposes of measuring cash payables and cash receivables in SFTs with the same counterparty on a net basis. This allowance is subject to the institution being able to demonstrate to OSFI that: i) it can contractually and operationally collapse an open maturity trade on the next business day without incurring legal or reputational risk; and ii) the trades are priced similarly to overnight trades. |
| Treatment of central bank reserves |
| We request that OSFI exercise national discretion and allow the exemption of central bank reserves from the leverage ratio exposure measure. |
The current round of revisions to the LR guideline is focused on aligning with modifications being made to the CAR guideline. OSFI will consider revisions to the treatment of central bank reserves separately as part of the domestic implementation of the Basel III reforms, and will consult stakeholders as part of the consultation process for future changes to the LR guideline. |
| Treatment of Credit Conversion Factors (CCFs) for Off Balance Sheet exposures |
Given that other jurisdictions remain under the 2014 BCBS leverage rules, we request that OSFI continue to allow the use of the 50% CCF so as not to place the Canadian banks at a competitive disadvantage when competing against banks from other jurisdictions for business outside of Canada.
We request that OSFI also allow the leverage for securitization credit facilities to be calculated using paragraph 40 of the LR guideline. |
The revised treatment of the CCFs for off-balance sheet securitization exposures, including the removal of the 50% CCF for eligible liquidity facilities, is being made to align with CCFs included under revisions to Chapter 7 of the CAR guideline. The revised CCFs in the CAR guideline better reflect international experience with respect to draws on securitization liquidity facilities during stressed events.
OSFI will consider specific revisions to the treatment of CCFs off-balance sheet securitization credit facilities separately as part of the domestic implementation of the Basel III reforms, and will consult stakeholders as part of the consultation process for future changes to the LR guideline. |