OSFI promotes financial institution resilience with a new version of its Large Exposure Limits guideline for Domestic Systemically Important Banks (D-SIBs)

Today, the Office of the Superintendent of Financial Institutions (OSFI) released the final version of its Guideline B-2: Large Exposure Limits for Domestic Systemically Important Banks.

Large exposure limits help to constrain the maximum loss an institution could face in the event of a sudden failure of a counterparty.

The guideline reflects current sound practices for the management of risks related to large exposures and provides additional guidance on methods OSFI expects D-SIBs to use for identifying, measuring, managing and monitoring risks in this area.

OSFI, as a member of the Basel Committee on Banking Supervision (BCBS), participated in the development of the international large exposure framework. Parts of this guideline are drawn from the BCBS large exposure framework entitled: Supervisory framework for measuring and controlling large exposures.

This new version of Guideline B-2:

• Introduces tighter limits for exposures to both Global Systemically Important Banks and to other Canadian D-SIBs.
• Recognizes eligible credit risk mitigation techniques by measuring exposure on a net basis rather than a gross basis.
• Reduces the eligible capital base from Total capital to Tier 1 capital.

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“This new version of the Large Exposure Limits guideline will ensure that Canada has up-to-date large exposure risk management guidance”, said Carolyn Rogers, Assistant Superintendent. “It will also encourage Canada’s domestic systemically important banks to adopt consistent and robust practices for mitigating risks related to large exposures.”