Office of the Superintendent of Financial Institutions
Subsection 485(1) and 949(1) of the Bank Act (BA), subsection 473(1) of the Trust and Loan Companies Act (TLCA) and subsection 409(1) of the Cooperative Credit Associations Act (CCAA) require banks, bank holding companies, trust and loan companies and cooperative retail associations, respectively, to maintain adequate and appropriate forms of liquidity.
The LAR Guideline is not made pursuant to subsection 485(2) or 949(2) of the BA, subsection 473(2) of the TLCA or subsection 409(2) of the CCAA. However, the liquidity metrics set out in this guideline provide the framework within which the Superintendent assesses whether a bank, a bank holding company, a trust and loan company or cooperative credit association maintains adequate liquidity pursuant to the Acts. For this purpose, the Superintendent has established two minimum standards: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). These standards – in conjunction with additional liquidity metrics where OSFI reserves the right to apply supervisory requirements as needed, including the net cumulative cash flow (NCCF), the liquidity monitoring tools and the intraday liquidity monitoring tools – when assessed as a package, provide an overall perspective of the liquidity adequacy of an institution. The LAR Guideline should be read together with the Basel Committee on Banking Supervision’s (BCBS) Principles for Sound Liquidity Risk Management and Supervision and OSFI’s Guideline B-6: Liquidity Principles. As such, OSFI will conduct detailed supervisory assessments of both the quantitative and qualitative aspects of an institution’s liquidity risk, as presented in the LAR Guideline and Guideline B-6, respectively. Notwithstanding that a bank, a bank holding company, a trust and loan company or cooperative credit association may meet the aforementioned standards, the Superintendent may by order direct a bank or bank holding company to take actions to improve its liquidity under subsection 485(3) or 949(3), respectively, of the BA, a trust and loan company to take actions to improve its liquidity under subsection 473(3) of the TLCA or a cooperative retail association to take actions to improve its liquidity under subsection 409(3) of the CCAA.
OSFI, as a member of the BCBS, participated in the development of the international liquidity framework, including Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (January 2013), Basel III: the Net Stable Funding Ratio - consultative document (October 2014) and Monitoring tools for intraday liquidity management (April 2013). This domestic guidance is based on the Basel III framework, supplemented to include additional OSFI-designed measures to assess the liquidity adequacy of an institution.
Where relevant, the Basel III paragraph numbers are provided in square brackets at the end of each paragraph referencing material from the Basel III framework. Some chapters include boxed-in text (called OSFI Notes) that set out how certain requirements are to be implemented by Canadian banks, bank holding companies, trust and loan companies and cooperative credit associations, collectively referred to as ‘institutions’.
The Liquidity Adequacy Requirements (LAR) for banks, bank holding companies, trust and loan companies and cooperative retail associations are set out in six chapters, each of which has been issued as a separate document. This document, which contains Chapter 1 – Overview, should be read together with the other LAR chapters which include:
Federally regulated deposit-taking institutions that are themselves subsidiaries and that i) do not have a parent that is either a DSIB or a foreign bank subsidiary and ii) whose operations are strictly in Canada and such operations are primarily Canadian dollar-related, do not need to adhere to the minimum standards and reporting requirements outlined in the LAR Guideline. However, the federally regulated parent deposit-taking institution of such an exempted subsidiary institution needs to comply with the requirements outlined in paragraph 5 below, in particular it needs to demonstrate that systems are in place to show the cash flow profiles of such legal entities and that such information can be provided to OSFI upon request.
The discussion of the NSFR contained in the LAR Guideline, and all text related to the NSFR, should be viewed as a placeholder given the BCBS issued a consultative document on proposed revisions to the NSFR in January 2014, for consultation until mid-April 2014. As such, all references to the NSFR standard contained in the LAR Guideline will be updated, and the NSFR chapter populated with rules text, when final guidance is issued by the BCBS.
OSFI will not require separate reporting of data related to the concentration of funding and available unencumbered assets monitoring tools in 2015. Rather, OSFI will utilize information submitted as part of other aspects of regulatory reporting (e.g. NCCF, U3 return, etc.) to assess the information elements requested under these monitoring tools in 2015.
The scope of application for the intraday liquidity monitoring tools will be limited to OSFI-regulated direct clearers only. OSFI will not require that such institutions report on the suite of intraday liquidity monitoring tools beginning on the first reporting date following January 1, 2015. However, OSFI will continue to review the applicable implementation date for these metrics – which will be, at latest, January 1, 2017 – and will discuss the proposed timing of rollout with affected institutions in advance of taking a final decision.
Following the format: [BCBS Jan 2013, para X], [BCBS Jan 2014, para X] and [BCBS Apr 2013, para X].
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