Office of the Superintendent of Financial Institutions
Canada, as a member of the Basel Committee on Banking Supervision (BCBS), participated in the development of the capital framework, including Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework – Comprehensive Version (June 2006) and Basel III: A global regulatory framework for more resilient banks and banking systems. This domestic guidance is based on the Basel II and III frameworks.
In October 2016, the BCBS finalized amendments to the Basel III standard on the definition of capital to introduce a regulatory capital treatment for banks’ holdings of Other TLAC (Total Loss Absorbing Capacity) instruments issued by global systemically important banks (G-SIBs) that qualify towards G-SIBs’ TLAC requirements and instruments ranking pari passu with those instruments.
The BCBS regulatory capital treatment aims to reduce a significant source of contagion in the banking system. As a member of the BCBS, OSFI supports this objective and is applying this standard to all deposit-taking institutions. OSFI has further determined that it is appropriate to extend the Basel III treatment to holdings of Other TLAC instruments issued by Canadian domestic systemically important banks (D-SIBs).
The regulatory capital adjustments for TLAC holdings are being implemented through revisions to OSFI’s Capital Adequacy Requirements (CAR)guideline. These changes will be effective for the 2019Footnote 1 fiscal year for all deposit-taking institutions.
The current CAR guideline does not reflect the October 2016 amendments to the Basel III Framework, nor does it otherwise subject institutions’ holdings of TLAC issued by G-SIBs and/or D-SIBs to a regulatory capital adjustment.
OSFI’s objective is to ensure that the CAR guideline remains comprehensive and incorporates Basel III capital standards as amended from time to time. Extending the BCBS’ standard on TLAC holdings to holdings of TLAC issued by both G-SIBs and/or Canadian D-SIBs is considered appropriate given the regulatory objective to limit contagion within the banking system.
It is recommended that the CAR guideline be updated periodically to ensure capital requirements continue to reflect underlying risks, to provide clarification on OSFI’s expectations around the aforementioned requirements, and to take into account developments in international standards and best practices.
The draft revisions to the CAR guideline were issued in June 2017 for public consultation. A summary of material comments received from stakeholders and an explanation of how they have been addressed has been provided along with the final guideline.
The revised CAR guideline will be effective April 18, 2018.
November 1, 2018 for institutions with an October 31st year-end and January 1, 2019 for institutions with a December 31st year-end.
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