Leverage Requirements Return (LRR)

Document Properties

  • Type of Publication: Reporting Manual
  • Audiences: Banks / BHC / T&L / Retail Associations
  • Date:  April 2015

PURPOSE

This return provides the leverage ratio of the reporting institution, as well as details of the calculation.

STATUTORY

Section 628 of the Bank Act, Section 495 of the Trust and Loan Companies Act and Section 431 of the Cooperative Retail Associations Act.

APPLICATION

This return applies to all banks, bank holding companies trust and loan companies and cooperative retail associations, collectively referred to as institutions. This includes institutions that are subsidiaries of federally regulated financial institutions (FRFIs). Foreign bank branches are not required to complete this return.

PUBLICATION

Certain information from this return is available on a total and institution-by-institution basis on the OSFI website at www.osfi-bsif.gc.ca.

FREQUENCY

Institutions with fiscal year-ends of October – Quarterly – January, April, July and October
Institutions with fiscal year-ends of December– Quarterly – March, June, September and December

CONTACT PERSON

Robert Bélanger, Capital Division (613-990-5893).

REPORTING DATES

The return must be completed on a quarterly fiscal basis and filed within 30 days of fiscal quarter end.

CONTACT AGENCY

OSFI

GENERAL INSTRUCTIONS

The LRR is to be completed using the methodologies and calculations described in OSFI’s Leverage Requirements Guideline (the “guideline”). The purpose of these instructions is to ease completion of the return by referencing its components to the applicable paragraph(s) of the guideline. In addition to guideline references, these instructions provide supplementary explanation for selected sections or cells in the return. Further guidance is provided through cross-referencing formulas in the return itself.

Generally, the LRR must be completed by all banks, bank holding companies, cooperative retail associations and federally regulated trust and loan companies. These OSFI-regulated entities are collectively referred to herein as institutions.

The shaded cells are totals or sub-totals. Although these cells are the result of arithmetic operations they must be populated by the institution as the return does not contain any built-in formulas.

Scope of Reporting Entity

Exposures and capital measures are to be reported on a group-wide basis for all entities which are consolidated by the institution for leverage requirement purposes as described in the guideline.

Calculation versus Reporting Detail

The two sections in this return are designed to provide the overall calculation of the Leverage Ratio (LR) as well as certain breakdowns regarding key components. In the case of derivatives exposure reported in Section 2, institutions must prepare more detailed breakdowns and calculations in order to derive the summary data required by the return. As a result, the reported figures will not necessarily be sufficiently detailed to enable a precise replication of the calculation.

LEVERAGE REQUIREMENTS

Section 1 – Leverage Ratio Calculation

1. On-balance sheet items

All on-balance sheet items should be reported net of individual or collective allowances. The following table provides a description of each data point address (DPA).

DPA Description Instructions LR para reference
1101 On balance sheet assets for purposes of the Leverage Ratio – Accounting balance sheet value Total on balance sheet assets based on the regulatory scope of consolidation. Amounts should be net of individual or collective allowances or accounting valuation adjustments (e.g. accounting credit valuation adjustments). This amount should include grandfathered securitization exposures reported in DPA 1105. 11
1108 On balance sheet assets for purposes of the Leverage Ratio – Gross value Total on balance sheet assets based on the regulatory scope of consolidation assuming no accounting netting or credit risk mitigation effects (i.e. gross values). This amount should include grandfathered securitization exposures reported in DPA 1116. 11
1102 Derivatives – Accounting balance sheet value Positive fair values of derivatives reported on a net basis (i.e. reflecting the effect of netting agreements and credit risk mitigation when permitted under IFRS.) 22
1109 Derivatives – Gross value Positive fair values of derivatives reported on a gross basis. 22
1103 Securities financing transactions – Accounting balance sheet value On balance sheet amount related to securities financing transactions. This amount should be reported net of individual or collective allowances and include the effects of netting agreements and credit risk mitigation only as per IFRS. 49
1110 Securities financing transactions – Gross value On balance sheet amount related to securities financing transactions with no recognition of accounting netting of (cash) payables against (cash) receivables. 49
1111 Grossed-up assets for derivatives collateral provided – Gross value The amount of any derivatives collateral provided where the provision of that collateral has reduced the value of the balance sheet assets under IFRS. However, initial margin for client cleared derivative transactions with a qualifying CCP (QCCP) and eligible cash variation margin, as defined in paragraphs 39 and 40 of the guideline should not be included. 38
1112 Receivables for cash variation margin provided in derivatives transactions – Gross value The receivables for eligible cash variation margin provided in derivatives transactions if the institution is required under IFRS to recognise these receivables as an asset. The amount reported must also be included in on balance sheet assets for purposes of the Leverage Ratio (DPA 1108). 39-40
1113 Exempted CCP leg of client-cleared trade exposures (initial margin) – Gross value The initial margin portion of exempted trade exposures to a QCCP from client-cleared derivatives transactions, where the institution acting as clearing member is not obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the QCCP defaults. The amount reported must also be included in on balance sheet assets for purposes of the Leverage Ratio (DPA 1108). 41
1114 Securities received in a SFT that are recognized as an asset – Gross value Securities received in a SFT that are recognised as an asset under IFRS and therefore included in on balance sheet assets for purposes of the Leverage Ratio (DPA 1108). 50
1104
1115
Asset amounts deducted in determining Basel III “all-in” Tier 1 capital Regulatory adjustments to Common Equity Tier 1 and Additional Tier 1 capital on an all-in basis. This amount should equal the sum of DPAs 1517, 1533, 1537, 1546, 1550, and 1565 on the BCAR reporting form. Deductions should be reported as a positive amount 15
1105 Grandfathered securitization exposures - Accounting Balance sheet value Accounting balance sheet value of mortgages sold through CMHC programs up to and including March 31, 2010 where grandfathering is permitted under the Guideline. 17
1116 Grandfathered securitization exposures - Gross value Gross value of mortgages sold through CMHC programs up to and including March 31, 2010 where grandfathering is permitted under the Guideline. 17
1106
1117
Placeholder These are placeholders for future use; “0” should be entered in these cells unless otherwise instructed by OSFI.
1107 On-balance sheet assets - excluding derivatives and SFTs - Accounting Balance sheet value The amount of on balance sheet assets excluding the amounts related to derivatives and SFTs. This amount should equal DPA 1101-1102-1103-1104-1105+1106. 14
1118 On-balance sheet assets - excluding derivatives and SFTs - Gross value The gross value of on balance sheet assets excluding the amounts related to derivatives and SFTs. This includes any instrument (including cash) borrowed or lent through an SFT when it is reported on the accounting balance sheet. This amount should equal
DPAs 1108-1109-1110+1111-1112-1113-1114-1115-1116+1117.
14
1119 Memo Item: Adjustments for SFT sales accounting transactions The value of securities lent in a SFT that are derecognised due to a sales accounting transaction. 53

2. Derivatives exposure

Subsection 1.2 includes a summary of the amounts reported on Section 2 of the LRR. The following table provides a description of each DPA.

DPA Description Instructions LR para reference
1201 Derivatives not covered by an eligible bilateral netting contract Total derivatives exposure for derivative transactions that are not subject to an eligible bilateral netting contract. This amount should equal the amount reported in DPA 2110 in Section 2. 23
1202 Derivatives covered by an eligible bilateral netting contract Total derivatives exposure for derivative transactions that are subject to an eligible bilateral netting contract. This amount should equal the amount reported in DPA 2129 in Section 2. 30
1203 RC of exempted leg of client-cleared trade exposure The replacement cost portion of exempted trade exposures to a QCCP from client-cleared derivatives transactions, where the institution acting as clearing member is not obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the QCCP defaults. 41
1204 PFE of exempted leg of client-cleared trade exposure Potential future exposure associated with exempted CCP leg of client-cleared trade exposures assuming no netting or CRM. 41
1205 Placeholder This is a placeholder for future use; “0” should be entered in this cell unless otherwise instructed by OSFI.  
1206 Net notional exposure for written credit derivatives The net notional exposure for written credit derivatives. This amount should equal the amount reported in DPA 2224 in Section 2. 45-47
1207 Total Derivative Exposures Total Derivatives Exposures for purposes of the LR. This amount should equal DPAs 1201+1202-1203-1204+1205+1206. 22

3. Securities Financing Transactions (SFT)

SFT exposures are to be reported in subsection 1.3. The following table provides a description of each DPA.

DPA Description Instructions LR para reference
1301 SFT agent transactions – Notional Amount The notional amount of SFT transactions where the institution acts as an agent and provides an indemnity against credit risk. 54-56
1311 SFT agent transactions – Counterparty exposure The counterparty exposure measure of eligible SFT agent transactions where the institution provides an indemnity for credit risk. As noted in the guideline, the determination of PFE for SFTs under the risk-based capital ratios requires the institution to apply haircuts to the value of securities and for foreign exchange risk. Since counterparty risk for SFTs for leverage ratio purposes is determined solely by the current exposure portion of the formula, no haircuts are needed in the leverage ratio calculation. 54-56
1303 All other SFTs (after adjusting for sale accounting transactions) – Accounting balance sheet value The balance sheet value of SFTs other than SFT agent transactions. This amount should be reported net of specific provisions and valuation adjustments and include the effects of netting agreements and credit risk mitigation only as permitted under IFRS. SFT traded OTC, on an exchange and through a CCP should all be included. 50
1305 All other SFTs (after adjusting for sale accounting transactions) – Gross value The gross value of SFTs other than SFT agent transactions. This amount should be reported with no recognition of accounting netting of (cash) payables against (cash) receivables. SFT traded OTC, on an exchange and through a CCP should all be included. 50
1307 All other SFTs (after adjusting for sale accounting transactions) – Adjusted Gross SFT assets The adjusted gross SFT assets of all SFTs other than SFT agent transactions. Cash payables and cash receivables may be measure net if the criteria in the guideline are met. 50
1312 All other SFTs (after adjusting for sale accounting transactions) – Counterparty exposure The counterparty credit risk exposure of all SFTs other than SFT agent transactions. Netting is permitted as outlined in the guideline. As noted in the guideline, the determination of PFE for SFTs under the risk-based capital ratios requires the institution to apply haircuts to the value of securities and for foreign exchange risk. Since counterparty risk for SFTs for leverage ratio purposes is determined solely by the current exposure portion of the formula, no haircuts are needed in the leverage ratio calculation. 50-52
1302
1304
1306
1308
1313
Placeholder These are placeholders for future use; “0” should be entered in this cell unless otherwise instructed by OSFI.  
1309 Total SFT Exposure – adjusted gross SFT assets Total adjusted assets for Securities Financing Transactions for purposes of the LR. The amount should equal DPA 1307+1308. 50
1314 Total SFT Exposure – counterparty exposure Total counterparty exposure for Securities Financing Transactions for purposes of the LR. This amount should equal DPAs 1311+1312+1313. 50
1310 Memo Item: SFT exposures to QCCPs from client-cleared transactions – Adjusted Gross SFT assets The adjusted gross SFT assets related to exposures to QCCPs from client-cleared SFT transactions, where the institution acting as clearing member is not obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the QCCP defaults. These exposures must be included in DPA 1307.  
1315 Memo Item: SFT exposures to QCCPs from client-cleared transactions – Counterparty exposure The counterparty credit risk exposure related to exposures to QCCPs from client-cleared SFT transactions, where the institution acting as clearing member is not obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the QCCP defaults. These exposures must be included in DPA 1312.  

4. Off balance sheet items (OBS)

Off balance sheet items should be reported in subsection 1.4. These amounts are converted into LR exposures through the use of credit conversion factors (CCFs) where CCFs are expressed as percentages. Reporting institutions should populate the Notional Amount column and the Exposure after CCF column. The CCF column is protected as CCFs are prescribed in the Guideline. The following table provides a description of each DPA.

DPA Description Instructions LR para reference
1401
1416
Unconditionally cancellable commitments – Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of commitments that are unconditionally cancellable at any time by the institution without prior notice or that effectively provide for automatic cancellation due to the deterioration in a borrower’s creditworthiness. 58
1402
1417
Commitments with an original maturity of one year or less - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of commitments (other than securitization liquidity facilities) with an original maturity of one year or less. Unfunded mortgage commitments should only be included when the borrower has accepted the commitment extended by the institution and all conditions related to the commitments have been fully satisfied. 58
1403
1418
Commitments with an original maturity of over one year - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of commitments (other than securitization liquidity facilities) with an original maturity of greater than one year. 58
1404
1419
Eligible servicer cash advance facilities - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of eligible undrawn servicer cash advances or facilities that are unconditionally cancellable without prior notice as defined in paragraph 65 of Chapter 7 of the CAR Guideline. 65
1405
1420
Eligible securitization liquidity facilities - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of eligible liquidity facilities as defined in paragraph 65 of Chapter 7 of the CAR Guideline. 65
1406
1421
Other off balance sheet securitization exposures - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of all other off balance sheet securitization exposures as defined in paragraph 65 of Chapter 7 of the CAR Guideline. 65
1407
1422
Direct credit substitutes - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of direct credit substitutes (e.g. general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances). SFT agent transactions should not be reported as direct credit substitutes. Instead they should be reported in DPAs 1301 and 1311. 59
1408
1423
Forward asset purchases - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of forward assets purchases defined as a commitment to purchase a loan, security, or other asset at a specified future date, usually on prearranged terms. 60
1409
1424
Forward forward deposits - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of forward/forward deposits defined as an agreement between two parties whereby one will pay and the other receive an agreed rate of interest on a deposit to be placed by one party with the other at some pre-determined date in the future. 60
1410
1425
Partly paid shares and securities - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of partly paid shares and securities defined as transactions where only a part of the issue or notional face value of a security purchased has been subscribed and the issuer may call for the outstanding balance (or a further installment), either on a date pre-determined at the time of the issue or an at unspecified future date. 60
1411
1426
Transaction-related contingent items - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of Transaction-related contingencies defined as guarantees that support particular performance of non-financial or commercial contracts or undertakings, rather than supporting customers’ general financial obligations. 61
1412
1427
NIFs and RUFs - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of Note Issuance/Revolving Underwriting Facilities which are arrangements whereby a borrower may issue short-term notes, typically three to six months in maturity, up to a prescribed limit over an extended period of time, commonly by means of repeated offerings to a tender panel. 62
1413
1428
Short-term self-liquidating trade letters of credit - Notional Amount and Exposure after CCF The notional amount, and exposure after CCF, of short-term self-liquidating trade-related items such as commercial and documentary letters of credit issued by the institution that are, or will be, collateralized by the institution. 63
1414
1429
Placeholder These are placeholders for future use; “0” should be entered in this cell unless otherwise instructed by OSFI.  
1415 Total off balance sheet exposures – Notional Amount The notional amount of all off balance sheet exposures. This amount should equal DPAs 1401+1402+1403+1404+1405+1406+1407+1408+1409+1410+1411+1412+1413+1414.  
1431 Total off balance sheet exposures – Exposure after CCF The amount of all off balance sheet exposures after applying the applicable CCF. This amount should equal DPAs 1416+1417+1418+1419+1420+1421+1422+1423+1424+1425+1426+1427+1428+1429.  

5. Leverage Ratio

The actual LR and its components are reported in Subsection 1.5. The institution’s authorized LR as prescribed by OSFI should also be reported here.

DPA Description Instructions LR para reference
1501 Total Exposures End-of-quarter total exposures for purposes of the Leverage Ratio. This amount should equal DPAs 1118+1207+1309+1314+1431. 13
1502 Tier 1 Capital End-of quarter Tier 1 capital of the institution measured on an all-in basis. This amount should equal DPA 1003 on the BCAR reporting form. 10
1503 Leverage Ratio (%) The ratio of Tier 1 capital to Total Exposures based on end-of-quarter amounts. The LR should be reported to five decimal places. This amount should equal DPAs 1502÷1501×100. 5
1504 Authorized Leverage Ratio (%) The authorized leverage ratio prescribed by OSFI for the institution. 6

6. Reconciliation to the accounting balance sheet

Subsection 1.6 includes a reconciliation of the amounts reported on the accounting balance sheet and the amounts reported for leverage requirements purposes.

DPA Description Instructions LR para reference
1601 On balance sheet assets as per consolidated balance sheet for accounting purposes Total on balance sheet assets of the consolidated entity reported for accounting purposes. All on-balance sheet amounts should be net of individual or collective allowances. 3
1602 Assets related to deconsolidated subsidiaries Total on balance sheet assets of subsidiaries that are deconsolidated for regulatory reporting purposes. 3
1603 Investments in deconsolidated subsidiaries The carrying value of the investments, typically accounted for under the equity method, in deconsolidated subsidiaries. 3
1604 Balances due from deconsolidated subsidiaries Balances due from deconsolidated subsidiaries 3
1605 Placeholder This is a placeholder for future use; “0” should be entered in this cell unless otherwise instructed by OSFI.  
1606 On balance sheet assets for purposes of the leverage ratio – Accounting value Total on balance sheet assets based on the regulatory scope of consolidation. This amount should equal DPAs 1601-1602+1603+1604+1605. 3

Section 2 – Derivatives exposure calculation

1. Financial and credit derivatives

Subsection 2.1 is broken down in two panels. Panel A) covers derivatives not subject to an eligible netting contract whereas panel B) covers derivatives subject to an eligible netting contract.

Replacement cost, notional amounts and add-on amounts for credit derivatives and financial derivatives are reported in two distinct columns. Financial derivatives include Interest rate contracts, foreign exchange rate contracts, equity-linked contracts, precious metals, and other commodity contracts. Credit and financial derivative types are described in the following table:

Product Type Description
Credit derivative contracts Credit derivative contracts include total return swaps, credit default swaps and credit-linked notes.
Interest rate contracts Interest rate contracts include single currency interest rate swaps, basis swaps, forward rate agreements and products with similar characteristics, interest rate futures, and interest rate options purchased.
Foreign exchange rate contracts Foreign exchange rate contracts include gold contracts, cross-currency swaps, cross-currency interest rate swaps, outright forward foreign exchange contracts, currency futures and currency options purchased.
Equity-linked contracts Equity-linked contracts include futures, forwards, swaps, purchased options, and similar contracts based on both individual equities as well as on equity indices.
Precious metals Precious metals (other than gold) (i.e. silver, platinum, and palladium) contracts include futures, forwards, swaps, purchased options, and similar contracts based on precious metals.
Other commodity contracts Other commodity contracts include futures, forwards, swaps, purchased options, similar derivatives contracts based on energy contracts, agricultural contracts, base metals (e.g. aluminum, copper and zinc) and other non-precious metal commodity contracts.

Single derivative exposure not covered by an eligible netting contract

Replacement costs, where contracts have individual positive values, are reported in DPAs 2101 and 2104. Total contracts (DPA 2107) should equal the sum of gross reported amounts in DPAs 2101 and 2104. Negative replacement costs should not be netted against any positive replacement cost.

For all contracts, notional amounts should be reported in DPAs 2102 and 2105 and should include all single derivative contracts including contracts with a negative replacement cost. The notional amounts are used to calculate the add-on for potential future exposure (PFE).

The Add-on (PFE) is obtained by multiplying the Notional Amount by the respective add-on factor for financial derivatives and credit derivatives listed in paragraphs 24 and 26 of the Guideline. The add-on for PFE is calculated for a derivative regardless of whether its replacement cost is positive or negative. The add-on calculation for credit derivatives is broken-down in subsection 2.2 where the total of add-ons for protection bought, DPA 2205 and sold, DPA 2210 is then carried back to DPA 2103.

Single derivative exposure (DPA 2110) equals the sum of Replacement cost – Total Contracts and Add-on (PFE) – Total Contracts i.e. DPAs 2107 and 2109. This amount is then carried back to subsection 1.2, DPA 1201.

Derivative exposure covered by an eligible netting contract

Derivative transactions where the contracts have positive values should be reported on the line Gross positive replacement cost prior to factoring in any eligible netting. Similarly, derivative transactions where the contracts have negative values should be reported on the line Gross negative replacement cost.

Net positive replacement cost for credit derivatives or financial derivatives does not necessarily equal Gross positive replacement cost minus Gross negative replacement cost. Institutions are expected to prepare more detailed breakdowns and calculations in order to derive the Net positive replacement cost. The greater of 0 or Net positive replacement cost should be reported in DPA 2123. Further guidance on eligible netting is provided in paragraphs 30-32 of the Guideline.

Cash variation margin received may reduce the replacement cost of the derivative assets where the positive mark-to-market value of the contract has not already been reduced by the same amount of cash under IFRS. The cash portion of the variation margin received should be reported in DPA 2124.

DPA 2125 should equal Net positive replacement cost minus the eligible cash variation margin received i.e. DPA 2123 minus DPA 2124.

Notional amounts of derivative exposure covered by an eligible netting contract should be reported in DPAs 2114 for credit derivatives and in DPA 2119 for financial derivatives. The notional amounts are used to calculate the AGross input of the net add-on formula.

The individual add-ons obtained by multiplying notional amounts by their respective add-on factors are reported in DPAs 2115 and 2120. The add-on calculation for credit derivatives is detailed in subsection 2.2 with the resulting add-on amount reported in DPA 2115. DPA 2115 should equal the sum of DPAs 2215 and 2220.

The calculation of ANet is described in paragraph 33 of the Guideline; for that purpose AGross corresponds to DPA 2127 and NGRFootnote 1correspond to the ratio DPA 2123 / DPA 2121.

Exposure for netted derivatives (DPA 2129) equals the sum of the replacement costs after eligible cash variation margin and ANet i.e. DPAs 2125 and 2128. This amount is then carried back to subsection 1.2, DPA 1202.

2. Additional information and treatment for credit derivatives

Add-on calculation for all credit derivatives

Panel A breaks down the individual add-on calculations for single and netted credit derivatives. The amounts reported should equal the notional amount multiplied by their respective add-on factors as listed in paragraph 26 of the Guideline. Total add-on for single derivatives is the sum of the total add-on for Protection Buyer, DPAs 2205 and Protection Seller, DPA 2210. The same applies to Derivatives eligible for netting i.e. DPAs 2215 and 2220. Total add-on for single derivatives and total add-on for derivatives eligible for netting should be carried back to DPAs 2103 & 2115 respectively.

To avoid overstating the exposure measure for credit derivatives, institutions may choose to deduct from the gross add-on AGross the individual add-on amounts relating to written credit derivatives which are not already offset and whose notional amount is included in the LR exposure measure. Institutions should reflect this adjustment directly in panel A.

Cash instrument equivalency

The effective notional amounts referenced by written credit derivatives are reported in DPA 2221. Net Notional exposure for written credit derivative is the result of Total written credit derivative – notional minus the eligible offsets of DPAs 2222 & 2223. Any negative change in fair value amount that has been incorporated in the calculation of Tier 1 capital with respect to written credit derivatives may be offset against the notional amount for written credit derivative. The offset should be reported in DPA 2222. The effective notional amount of a purchased credit derivative on the same reference name may further reduce the notional amount; these amounts should be reported in DPA 2223. Further guidance is provided in paragraphs 44-45 of the Guideline. DPA 2224 is carried back to subsection 1.2, DPA 1206.

Footnotes

Footnote 1

NGR = level of net replacement cost/level of gross replacement cost for transactions subject to legally enforceable netting arrangements.

Return to footnote 1