OSFI Releases a Draft Guideline on Total Loss Absorbing Capacity for Canada’s Domestic Systemically Important Banks

News Release

For Immediate Release

OTTAWA ─ June 16, 2017 ─ Office of the Superintendent of Financial Institutions

The Office of the Superintendent of Financial Institutions (OSFI) today released for comment a draft guideline on Total Loss Absorbing Capacity (TLAC). OSFI’s draft guideline will apply to Canada’s Domestic Systemically Important Banks (D-SIBs) as part of the Federal Government’s Bank Recapitalization (Bail-in) Regime. OSFI is issuing its draft TLAC guideline in conjunction with the pre-publication of certain bail-in regulations by the Department of Finance.

In November 2015, the Financial Stability Board finalized the international TLAC standard for all Global Systemically Important Banks (G-SIBs). The TLAC framework, which Canada is extending to its six largest banks, is designed to ensure that a systemically important bank has sufficient loss absorbing capacity to support its recapitalization in the unlikely event of its failure. The framework would facilitate an orderly resolution of a bank to allow it to remain open and operating without requiring public funds or threatening financial stability.

Under the Bank Act, OSFI is responsible for setting, monitoring and enforcing the TLAC requirements for Canada’s six largest banks. Canadian D-SIBs will have until November 1, 2021, to meet the TLAC requirements.

The regulatory capital adjustments for the treatment of TLAC holdings are being implemented through revisions to OSFI’s Capital Adequacy Requirements (CAR) guideline. The draft changes will align OSFI’s expectations with the Basel Committee on Banking Supervision’s standard on the regulatory capital treatment of banks’ holdings of TLAC instruments. OSFI is proposing to extend the Basel III standard to the TLAC holdings issued by Canadian D-SIBs. These changes will be effective in 2018.

Together with the Capital Adequacy Requirements (CAR) guideline and the Leverage Requirements guideline, the proposed TLAC guideline will provide OSFI with a robust framework to assess a D-SIB’s minimum capacity to absorb losses.

Quote

“This framework will ensure a non-viable D-SIB has sufficient loss absorbing capacity to support its recapitalization. As a result, it will contribute to financial stability and market confidence, and minimize taxpayers’ exposure to loss,” said Carolyn Rogers, Assistant Superintendent, Regulation Sector.

Quick Facts

  • OSFI’s draft TLAC guideline is consistent with the Financial Stability Board’s TLAC standard for global systemically important banks, but is tailored to the Canadian context.
  • Public disclosure of D-SIBs’ TLAC ratios will begin for the fiscal quarter commencing on November 1, 2018, but D-SIBs will have until November 1, 2021, to fully meet the TLAC requirements.
  • The deadline for submitting comments on the draft TLAC guideline is July 17, 2017. OSFI will release the final TLAC guideline later this year.
  • The deadline for submitting comments on the revisions to the CAR guideline is July 17, 2017.

Associated Links

TLAC Requirement

CAR Revisions

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.

Media Contact

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