Office of the Superintendent of Financial Institutions
In January 2014, the Basel Committee on Banking Supervision (BCBS) issued its final rules on information that internationally active banks must publically disclose on its Liquidity Coverage Ratio (LCR). Entitled, Liquidity Coverage Ratio Disclosure StandardsFootnote 1 (“Basel LCR Disclosure Standards”), the publication sets out a common disclosure framework to ensure that LCR information is publically disclosed in standardized formats across and within jurisdictions to help users consistently assess a bank’s liquidity risk position specific to the LCR. The publication includes a LCR common disclosure template and qualitative disclosures to help users understand the LCR data. It also includes guidance on broader qualitative and quantitative disclosures on liquidity risk.
This guideline sets out the public disclosure requirements on the LCR for Domestic Systemically Important Banks (D-SIBs).
The disclosure requirements described in Part 4(I) (LCR disclosure requirements) of this guideline are mandatory disclosures for internationally active banks and thus, apply to Canada’s D-SIBs.
D-SIBs are required to implement the Basel LCR Disclosure Standards beginning with the Q2, 2015 reporting period.
As liquidity positions can be subject to rapid change, disclosures are most relevant and useful if published frequently. As such, the Basel LCR Disclosure Standards require disclosures to be made at the same frequency as, and concurrently with, the publication of the financial statements. This would mean D-SIBs should be providing disclosures on a quarterly basis and at the same time as the publication of the financial statements.
Disclosures should be included in published financial reports or, at a minimum, provide a direct and prominent link to the completed disclosure on the bank’s website. D-SIBs may choose where to provide the disclosures in their financial reports (e.g. management discussion and analysis, financial statement notes, supplemental information or Pillar 3 report).
D-SIBs must also make available on their websites an archive of disclosures for a minimum of 12 months; where investor information is available for longer periods, the same archive period should also be used for disclosures.
OSFI is implementing the disclosure requirements in the Basel LCR Disclosure Standards with no changes. There are two parts to the Basel LCR Disclosure StandardsFootnote 2 which include quantitative and qualitative disclosures as follows:
The Basel LCR Disclosure Standards for each of these two parts are described.
D-SIBs should provide the following Basel mandatory disclosures as provided below.
A. Basel LCR common disclosure template: This template captures key quantitative information about the LCR and is calculated on a regulatory consolidated basis and presented in Canadian dollars. This template should be disclosed on a quarterly basis, starting with the Q2, 2015 reporting period. D-SIBs can initially disclose the average LCR data based on use of month-end positions but are required to disclose their average LCR based on use of daily positions by Q1, 2017 reporting periods. D-SIBs must disclose the number of data points used in calculating the average figures in the template. Refer to the Appendix for the Basel instructions on the completion of the Basel LCR common disclosure template.
See table legend below
To calculate the average LCR based on use of daily positions, the LCR should be measured on a business day basis for each quarterly reporting period. Business days are defined to include all weekdays except federal and provincial statutory holidays based upon the domicile of the bank.
B. The Basel LCR Disclosure Standards also requires banks to provide sufficient qualitative disclosures around the LCR to facilitate understanding of the results and data disclosed. This Basel disclosure requirement would be provided on a quarterly basis to supplement the Basel LCR common disclosure template. Specifically, where significant to the LCR, D-SIBs could discloseFootnote 6:
As noted in paragraph 16 of the Basel LCR Disclosure Standards, given that there is no single metric that can comprehensively quantify the liquidity risk of a bank, the Basel LCR Disclosure Standards provide guidance on other liquidity information that will provide users a broader understanding of a bank’s liquidity risk position and management and promote market discipline. It builds on the BCBS’s Principles for Sound Liquidity Risk Management and SupervisionFootnote 7 Principle 13, which is incorporated into OSFI’s B-6 Liquidity Principles GuidelineFootnote 8 (“B-6 Guideline”). Principle 13 states:
“A bank should publicly disclose information on a regular basis that enables market participants to make an informed judgement about the soundness of its liquidity risk management framework and liquidity position.”
The broader qualitative and quantitative disclosures on liquidity risk in the Basel LCR Disclosure Standards are provided below. As these are optional disclosures, D-SIBs can use discretion on what disclosures to provide based on disclosures most relevant while also ensuring compliance with Principle 13. The frequency of broad qualitative disclosures on liquidity risk can be disclosed on an annual basis if there are no significant changes between each quarter.
Quantitative DisclosuresFootnote 9
Qualitative disclosuresFootnote 10
Appendix: Instructions for completion of LCR common disclosure template
Instructions have been extracted from and should be read in conjunction with the Basel LCR Disclosure Standards.
The table following the instructions has been extracted from Annex 1 of the Basel LCR Disclosure Standards, which provide an explanation of each line with references to relevant paragraphs from the BCBS’s Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring toolsFootnote 11and has been further supplemented with references to relevant paragraphs from OSFI’s Liquidity Adequacy Requirements Guideline (“LAR Guideline”)Footnote 12.
Extracted instructions from Section 2 and Annex 2 of the Basel LCR Disclosure Standards
The rows of the template are fixed and compulsory for D-SIBs to populate and publically disclose. The categories in the rows and columns in the template should not be altered. More specifically:
BCBS January 2014: http://www.bis.org/publ/bcbs272.pdf.
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The Basel LCR Disclosure Standards provide extensive discussion regarding these disclosures and should be read in conjunction with this guideline.
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Section 2, Basel LCR Disclosure Standards.
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Section 3, Basel LCR Disclosure Standards.
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Page 4, Basel LCR Disclosure Standards.
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Paragraph 15, Basel LCR Disclosure Standards.
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BCBS September 2008: http://www.bis.org/publ/bcbs144.pdf.
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OSFI February 2012: http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b6.aspx Note, Principle 13 in OSFI’s B-6 Guideline should be read in conjunction with Principle 13 in BCBS’s Principles for Sound Liquidity Risk Management and Supervision.
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Paragraph 18, Basel LCR Disclosure Standards.
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Paragraph 19, Basel LCR Disclosure Standards.
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BCBS Jan 2013: http://www.bis.org/publ/bcbs238.pdf.
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OSFI LAR Guideline: http://www.osfi-bsif.gc.ca/Eng/wn-qn/Pages/LAR.aspx
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Annex 1, Basel LCR Disclosures Standard.
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BCBS January 2013: www.bis.org/publ/bcbs238.pdf.
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