Summary of OSFI’s proposed changes: Q2-2023 BCAR

Purpose

This document provides the summary of OSFI's proposed changes in Q2-2023 BCAR.

Basel III-related changes

  1. Structure of asset class schedules.

    The asset class structure between Standardized Approach (SA) and Internal Ratings Based (IRB) approach is aligned as much as possible. For example, Commercial Real Estate (CRE) is not defined as a separate asset class in the 2023 CAR Guideline. However, the 2023 BCAR includes IRB schedules for CRE in order to facilitate the comparison of capital requirements for CRE between the SA and IRB approaches.

  2. List of credit risk schedules for new or refined asset classes (see the "schedule listing" worksheet of the 2023 BCAR template) (reference to SA or IRB schedule number)

    1. Non-central government Public Sector Entities (PSE) (40.020, 50.020)
    2. Multilateral Development Banks (MDB) (40.030, 50.030)
    3. Breakdown of the Bank asset class into sub-asset classes
      1. Bank (40.040, 50.040)
      2. Covered bonds (40.050, 50.050)
      3. Securities firms and other financial institutions treated as Bank (40.060, 50,060): Private mortgage insurers belong to this asset class.
    4. Breakdown of the Corporate asset class into sub-asset classes
      1. General Corporate
        1. By size:
          1. Large Corporate (annual revenues > C$750MM) (40.070, 50.070)
          2. Mid-sized Corporate (annual revenues between C$75MM and C$750MM) (40.080, 50.080)
          3. SME Corporate (annual revenues
        2. Securities firms and other financial institutions treated as Corporate (excluding SMEs) (annual revenues > C$75MM) (40.100, 50.100)
      2. Specialized lending:
        1. SA: One schedule for Project finance (PF), Object finance (OF), Commodity finance (CF) (40.110)
        2. IRB approach: Separate schedules for five sub-asset classes
          1. PF, OF, CF (50.110, 50.120, 50.130)
          2. High-volatility CRE including Acquisition, Development and Construction (ADC) (50.140)
          3. Slotting approach (50.150)
    5. Breakdown of the Retail asset class into sub-asset classes
      1. Regulatory retail
        1. Transactors (40.130, 50,160)
        2. Non-transactors (40.140, 50.170)
        3. Indirect auto (40.150, 50.180)
        4. Small business entities (SBE) treated as Regulatory Retail (40.160, 50.190)
        5. All other regulatory retail exposures (40.170, 50.200)
      2. Non-regulatory retail (40.180, 50.210)
    6. Real estate
      1. Residential real estate
        1. General residential real estate
          1. Residential mortgage (40.190, 50.220)
          2. HELOC (40.200, 50.230)
        2. Income producing residential real estate
          1. Residential mortgage (40.210, 50.240)
          2. HELOC (40.220, 50.250)
        3. Do not meet expectation related to B-20
          1. Residential mortgage (40.220a, 50.250a)
          2. HELOC (40.220b, 50.250b)
      2. Commercial real estate (CRE)
        1. General CRE (40.230, 50.260)
        2. Income producing CRE (40.240, 50.270)
    7. Other new asset classes
      1. Land acquisition, development and construction (ADC) (40.250, 50.280)
      2. Reverse mortgages (40.260)
      3. Mortgage-backed securities (MBS) (40.270)
      4. Subordinated debt, equity and other capital instruments (40.120)
      5. Equity investment in funds (40.280, 50.290)
      6. Central counterparty (CCP) (70.040)
      7. Credit Valuation Adjustments (CVA) (80.010)
  3. Standardized risk weights
    1. More risk-sensitive standardized risk weights
    2. Risk weights for the Simplified Treatment to some credit risk asset classes
    3. Risk weights for defaulted exposures (100% or 150%) are distinguished from the same risk weights (100% or 150%) for non-defaulted exposures
  4. Operational risk

    Schedule 30.010 reflects the new Standardized Approach and Simplified Standardized Approach for operational risk.

SMSB Proportionality-related changes

  1. Streamlined reporting requirements for Category III SMSBs
    1. Schedules only for Category III SMSBs:
      1. 10.011: Simplified Risk-Based Capital Ratio (SRBCR) Calculations for Category III SMSBs
      2. 10.041: Countercyclical Buffer (CCyB) Requirement for Category III SMSBs
    2. Other required schedules: 20.010, 20.020, 20.030, 30.010, 40.120. 40.280 and 40.290.
    3. Category III SMSBs should not complete any of the other schedules.

Housekeeping changes

General housekeeping changes

  1. Schedule numbers
    1. Format of a schedule number: xx.yyy (e.g., 10.010)
      1. The xx corresponds to a chapter number. For example, a schedule number 10.010 corresponds to CAR Chapter 1.
      2. The yyy corresponds to the serial numbering.
    2. SA schedules: 40.yyy
    3. IRB schedules: 50.yyy
  2. Reporting basis and reporting of credit risk mitigation (CRM): Change from an original obligor basis to an ultimate risk basis.
    1. Exposures affected by CRM move from original obligor schedules to schedules for CRM providers. For example,
      1. Currently, if a corporate loan with a 100% risk weight is guaranteed by a bank with a 50% risk weight, exposures do not move from the Corporate schedule to the Bank schedule; rather the exposures move from a 100% risk weight bucket to a 50% risk weight bucket within the Corporate schedule.
      2. Under the new reporting method, guaranteed exposures move from the Corporate schedule to a 50% risk weight bucket of the Bank schedule.
  3. DPA numbers for new DPAs have 5 digits and start from 10001 as current 4 digit DPA numbers almost ran out. New DPA numbers are aligned to schedules as much as possible.
    1. 10000 - 11999: Schedules for 10.yyy series
    2. 12000 - 12999: Schedules for 20.yyy series
    3. 13000 – 13999: Schedules for 30.yyy series
    4. 14000 – 14999: Schedules for 40.yyy series and all the other schedules
      1. 14301 – 14399: Schedule 50.290
      2. 14400 – 14499: Schedule 70.040
  4. Replacement of a 1250% risk weight with a capital deduction except Securitization
  5. Addition of Model risk add-on RWA as a sixth exposure type to IRB schedules in order to track additional RWAs due to model risks separately. Additional model risk RWAs can be imposed by OSFI or be self-imposed voluntarily by banks until new models are implemented.
  6. The first PD band of IRB schedules: a PD floor. When there is a PD floor for a specific asset class, the first PD band of the IRB schedule should be the PD floor for the asset class (e.g, 0% for Sovereign, 0.05% for Corporate) instead of an average PD of the PD band.

Schedule-specific housekeeping changes

  1. Addition of exposure data to the Summary of RWA schedule (10.030)
  2. New schedule for the Summary of All Insured Canadian Mortgage and HELOCs (10.080).
  3. Mortgages insured by private mortgage insurers (PMIs):
    1. PMIs are classified as Securities firms and other financial institutions treated as Bank.
    2. Mortgages insured by PMIs under the PD substitution method are currently reported in the Corporate schedule and those exposures will be reported in the schedule for Securities firms and other financial institutions treated as Bank.
  4. Moving investment exposures from Other credit risk-weighted assets schedule (current BCAR schedule 38) to Subordinated debt, equity and other capital instruments schedule (40.120)
  5. Clarifications in "other" items of Other credit risk-weighted assets (40.290)
  6. Carve out of CCP (70.040) and CVA (80.010) from the Other credit risk-weighted assets schedule (2020 BCAR schedule 38) into separate stand-alone schedules