OSFI releases capital guidelines updates for financial resiliency
News release - Ottawa -
Today, the Office of the Superintendent of Financial Institutions (OSFI) revised the following capital guidelines:
- Capital Adequacy Requirements (CAR)
- Life Insurance Capital Adequacy Test (LICAT)
- Minimum Capital Test (MCT)
- Mortgage Insurer Capital Adequacy Test (MICAT)
The revised CAR and MICAT guidelines establish capital requirements for lenders and mortgage insurers, respectively, that better align with risks associated with growing mortgage balances due to increased interest rates. These changes will require institutions to hold more capital for mortgages where payments don’t cover the interest portion of the loan (i.e., negatively amortizing mortgages). For consumers who currently have a mortgage, these changes will not lead to an increase in monthly payments.
Other revisions that have been made to the CAR, LICAT, MCT, and MICAT guidelines further clarify how banks and insurers should apply the capital guidelines. The joint release of the revised capital guidelines makes transparent the changes in capital expectations, thereby ensuring consistent implementation at regulated institutions.
The revised capital guidelines are effective fiscal Q1 2024, which is January 1, 2024 for most institutions. For banks with a fiscal year end of October 31, the revised CAR guideline is effective November 1, 2023.
“We have updated several of our capital guidelines to promote prudent allocation of capital against risks that lenders and insurers take. Consistent with our approach to principles-based regulation, we first consulted regulated institutions on these changes and we thank those who provided us with their feedback. We believe these incremental changes add additional resilience to Canada’s financial system.”
- Peter Routledge, Superintendent of Financial Institutions
Quick facts
- OSFI’s CAR guideline provides a framework for assessing the capital adequacy of banks, bank holding companies, and federally regulated trust and loan companies.
- OSFI’s MICAT guideline applies to Canadian mortgage insurers and provides a framework for assessing their capital adequacy.
- OSFI announced a consultation for feedback on proposed changes to the CAR and MICAT guidelines on July 11, 2023.
- OSFI’s MCT guideline applies to property and casualty insurers and provides a framework for assessing their capital adequacy.
- OSFI’s LICAT guideline applies to life insurers and provides a framework for assessing their capital adequacy.