OSFI releases for public consultation updates to the capital requirements for loans secured by residential real estate

OTTAWA ─ April 29, 2016 ─ Office of the Superintendent of Financial Institutions Canada

The Office of the Superintendent of Financial Institutions Canada (OSFI) today released for public consultation proposed updates to the regulatory capital requirements for loans secured by residential real estate. These updates will ensure that capital requirements remain prudent in periods where house prices are high relative to household income and/or house prices are increasing rapidly in nominal terms. The proposed updates apply to those federally regulated deposit-taking institutions (DTIs) approved by OSFI to use the internal ratings-based (IRB) approach to credit risk.

Included in the updates is the introduction of a risk-sensitive floor on IRB capital requirements to take into account periods where the value of properties pledged as collateral becomes less certain. The proposed floor would be included in banks’ estimates of loss given default (LGD).

These updates provide a measured and forward looking response to the changing risks occurring in the Canadian mortgage market.

Quick Facts

  • DTIs currently using internal models for loans secured by residential real estate include: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, HSBC Canada, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank.
  • These updates are part of the updates to capital requirements for residential mortgages announced by OSFI in December 2015. They will be incorporated into Chapter 6 of the Capital Adequacy Requirements (CAR) guideline and become effective as of November 1, 2016.
  • OSFI is inviting comments on the proposed updates, which it will consider during development of the final version. The deadline for submitting comments is June 10, 2016.
  • A non-attributed summary of industry comments and OSFI's responses will be posted on the OSFI website with the release of the final guideline later this year.

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About OSFI

The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.

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Media Contact

Annik Faucher
OSFI – Public Affairs
annik.faucher@osfi-bsif.gc.ca
613-949-8401