- Type of Publication: Letter
- Date: March 16, 2021
- To: Deposit Taking Institutions (DTIs) subject to market risk capital requirements
In its March 27, 2020 letter, OSFI announced that on a temporary basis, institutions subject to market risk capital requirements and using internal models may reduce the Stressed VaR (SVaR) multiplier they use by two (2). This meant that the SVaR multipliers would temporarily not be subject to a minimum value of three (3) as prescribed in Chapter 9 of OSFI’s Capital Adequacy Requirements (CAR) Guideline.
OSFI further communicated through FAQs for DTIs that it would monitor institutions' Value at Risk (VaR) and SVaR reports weekly to assess when prevalent market conditions had returned to normal levels. Additionally, in recognition of the minimum one year historical observation period used to calculate regulatory VaR, OSFI committed to extending treatment until at least April 2021.
Through monitoring efforts, OSFI has now concluded that financial market conditions have stabilized and the heightened volatility present in historical minimum observation periods used for calculating regulatory VaR will have subsided by end-April 2021. As such, the adjustment related to SVaR multipliers will no longer be necessary and can be unwound.
Specifically, as of May 1, 2021, federally regulated DTIs that are subject to market risk requirements should restore their SVaR multipliers to the levels that were in place prior to OSFI affording them this regulatory flexibility. For institutions with a fiscal year-end in October, this means reverting to the SVaR multiplier that was in place on January 31, 2020. For institutions with a fiscal year-end in December, this means reverting to the SVaR multiplier that was in place on December 31, 2019.
This change aligns with OSFI’s assessment of the SVaR multiplier adjustment against the four criteria for regulatory and supervisory adjustments communicated by the Superintendent on April 3, 2020, specifically that the adjustment would need to remain credible, consistent, necessary and fit-for-purpose.
OSFI continues to closely monitor conditions and remains prepared to adjust its guidance and temporary measures if necessary.