Backgrounder: Draft Guideline B‑2 – Large Exposure Limits for Small and Medium-Sized Banks

Overview

The Office of the Superintendent of Financial Institutions (OSFI) is launching a 90‑day public consultation on the draft revised Guideline B‑2 – Large Exposure Limits.

The proposed revisions build on the January 2019 version of Guideline B-2 that applies to domestic systemically important banks (DSIBs). The draft amendments extend the guideline's scope to include Category 1 and Category 2 small and medium sized banks (SMSBs) and replace the 1994 large exposure guideline currently applicable to these institutions. Under the revisions, Category 3 SMSBs and foreign bank branches will no longer be subject to the large exposure guideline.

For Category 1 and 2 SMSBs, the draft guideline would:

• limit total exposures to a single counterparty or a group of connected counterparties to 25% of an institution's Tier 1 capital
• measure exposures net of credit risk mitigation in line with capital requirements
• update how to identify groups of connected counterparties
• introduce quarterly reporting using the same template as larger banks

Why it's important

Large exposure limits help reduce the risk that arise from large exposures to a single counterparty or a group of connected counterparties. The sudden failure of a counterparty to which a financial institution has large and concentrated exposures can lead to significant losses, potentially impacting the viability of the institution.

The proposed updates aim to strengthen risk management of single-name concentration risk, helping to maintain confidence in our financial institutions and protect depositors. Extending the existing 2019 guideline to Category 1 and Category 2 SMSBs, while tailoring expectations to institution size and complexity, improves consistency and supports effective supervision.

Next steps

The consultation is open until August 19, 2026. Stakeholders can submit comments to Consultations@osfi-bsif.gc.ca.

OSFI will review feedback before finalizing the guideline. OSFI expects to publish the final guideline in February 2027, with implementation planned for November 1, 2027, or January 1, 2028 for institutions with a fiscal year ending October 31 or December 31, respectively.