Capital

The following statements describe the rating categories OSFI uses when assessing capital adequacy and capital management policies and practices of an institution.  Capital adequacy includes both the level and quality of capital.  The assessment is made in the context of the nature, scope, complexity, and risk profile of an institution.

Capital adequacy is strong for the nature, scope, complexity, and risk profile of the institution, and meets or exceeds OSFI’s target levels.  The trend in capital adequacy over the next 12 months is expected to remain positive.  Capital management policies and practices are superior to generally accepted industry practices.

Capital adequacy is appropriate for the nature, scope, complexity, and risk profile of the institution and meets OSFI’s target levels.  The trend in capital adequacy over the next 12 months is expected to remain positive.  Capital management policies and practices meet supervisory expectations.

Capital adequacy is not always appropriate for the nature, scope, complexity, and risk profile of the institution and, although meeting minimum regulatory requirements, may not meet, or is trending below, OSFI’s target levels.  The trend in capital adequacy over the next 12 months is expected to remain uncertain.  Capital management policies and practices may not meet generally accepted industry practices.

Capital adequacy is inappropriate for the nature, scope, complexity, and risk profile of the institution and does not meet, or marginally meets, minimum regulatory requirements.  The trend in capital adequacy over the next 12 months is expected to remain negative.  Capital management policies and practices do not meet generally accepted industry practices.

The following criteria describe the characteristics OSFI uses to assess an institution’s capital adequacy and capital management policies and practices.  The application and weighting of the individual criteria will depend on the nature, scope, complexity, and risk profile of an institution.

1.1 Adequacy of capital in relation to regulatory minimum and target requirements, the institution’s risk profile, and internal targets.

1.2 Appropriateness of the types and mix of capital instruments, and the level of high quality capital.

1.3 Extent of regulatory arbitrage in managing capital adequacy.

1.4 Adequacy of capital to support planned business activities.

1.5 Willingness and ability of the shareholder(s) or head/home office to assist the institution in maintaining regulatory capital or vesting requirements and/or ability of the institution to raise capital externally.

2.1 Extent to which capital management policies and practices are enterprise-wide and supported by sufficient authority and resources.

2.2 Appropriateness of the process for developing capital management policies and practices.

2.3 Appropriateness of capital management policies and practices.

2.4 Extent to which the capital planning process is integrated with the institution’s strategic and business plans and provides for regular monitoring to ensure that it continues to meet regulatory minimum and target capital requirements.

2.5 Extent to which the capital management process provides for an appropriate amount of stress testing under different scenarios, including possible events or changes in environmental conditions that could adversely impact the institution.

2.6 Adequacy of the capital plan.

3.1 Extent to which Senior Management accountability is required for significant policies and plans related to management of capital and liquidity (e.g., stress testing, ICAAP/ORSA) to align with the Risk Appetite Framework.

3.2 Extent to which the Board provides challenge, advice and guidance to the Senior Management of the institution on the effectiveness of significant policies and plans related to management of capital and liquidity.

4.1 Extent to which Board approval is required for significant policies, plans and strategic initiatives related to the management of, or that materially impact, capital and liquidity (e.g., internal capital targets, share issuance).