Office of the Superintendent of Financial Institutions
Subsection 485(1) and 949(1) of the Bank Act (BA) and subsection 473(1) of the Trust and Loan Companies Act (TLCA) require banks, bank holding companies and trust and loan companies, 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 or subsection 473(2) of the TLCA. However, the liquidity metrics set out in this guideline provide the framework within which the Superintendent assesses whether a bank, a bank holding company or a trust and loan company 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 or a trust and loan company 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 or a trust and loan company to take actions to improve its liquidity under subsection 473(3) of the TLCA.
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 (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 and trust and loan companies, collectively referred to as 'institutions'.
The Liquidity Adequacy Requirements (LAR) for banks, bank holding companies and trust and loan companies are set out in six chapters, each of which has been issued as a separate document. This document, which contains Chapter 5 – Liquidity Monitoring Tools, should be read together with the other LAR chapters which include:
OSFI will utilize the Net Cumulative Cash Flow (NCCF) metric, as outlined in Chapter 4, to provide such a maturity mismatch metric.
A. Funding liabilities sourced from each significant counterparty as a % of total liabilities
B. Funding liabilities sourced from each significant product/instrument as a % of total liabilities
C. List of asset and liability amounts by significant currency
1. Calculation of the metric
(i) Significant counterparties
(ii) Significant instruments / products
(iii) Significant currencies
Institutions will not need to provide separate information on asset and liability categories where significant currencies relate to CAD, USD, GBP and EUR as this information will be provided through reporting of individual currency balance sheets and individual currency liquid assets in the NCCF. Institutions are, however, required to provide information on the NCCF asset and liability categories in currencies other than the four listed above, to the extent they are above the significant currency threshold described in paragraph 13.
(iv) Time buckets
Available unencumbered assets that are marketable as collateral in secondary markets
Available unencumbered assets that are eligible for central banks' standing facilities
1. Market-wide information
Institutions do not need to provide information to OSFI related to the above market-wide information tool, rather OSFI will obtain such information from its regular monitoring of major markets and the economy more broadly.
2. Information on the financial sector
Institutions do not need to provide information to OSFI related to the above financial sector information tool, rather OSFI will obtain such information from its regular monitoring of indicators relevant to the financial sector.
3. Institution-specific information
Regarding institution-specific information, OSFI requests a number of metrics be provided – on a consolidated basis – including but not limited to:
Following the format: [BCBS January 2013, para x]
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For some funding sources, such as debt issues that are transferable across counterparties (such as CP/CD funding dated longer than overnight, etc.), it is not always possible to identify the counterparty holding the debt.
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For example, where the monitored institution also extends funding or has large unused credit lines outstanding to the "significant counterparty".
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Cash flows from assets, liabilities and off-balance sheet items will be computed in the currency that the counterparties are obliged to deliver to settle the contract, independent of the currency to which the contract is indexed (or "linked"), or the currency whose fluctuation it is intended to hedge.
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