OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR Disclosures
OSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline. All deposit-taking institutions are expected to comply with liquidity coverage ratio (LCR), net cumulative cash flow (NCCF) metrics, and Liquidity Monitoring Tools parts of the revised guideline by January 01, 2020. Additionally, designated domestic systemically important banks (D-SIBs) are expected to comply with NSFR requirements of the guideline by January 01, 2020.
The revised LAR guideline will help financial institutions enhance their resilience to short-term liquidity stresses and will ensure that they maintain stable funding profile over the longer-term. The environment in which Canadian financial institutions operate has evolved considerably since the LCR and the NCCF metrics were issued in 2014. Some institutions increasingly rely on deposit funding that may experience higher risk of withdrawals in periods of stress. Such funding models can amplify risks for both individual institutions and for the financial system at large. To help mitigate this risk, OSFI has introduced targeted changes to the LAR’s LCR and NCCF metrics that better reflect the increased risks posed by different types of retail deposits that may be subject to sudden withdrawals.
Additionally, Chapter 3 of the revised LAR guideline implements NSFR in Canada for D-SIBs. Following a public consultation in February 2019, OSFI issued the final version of the NSFR guideline. This guideline sets out the NSFR disclosure requirements for D-SIBs. The disclosures for funding risk will complement NSFR requirement of OSFI and encourage transparency, comparability, and market discipline related to this key liquidity measure. The Annex summarizes the material comments received and the respective responses of OSFI. The guideline takes effect with the quarterly reporting period ending January 31, 2021.
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Effective Date: January 01, 2020
Keywords: Americas, Canada, Banking, Liquidity Risk, LAR Guideline, NSFR, Basel III, Disclosures, D-SIBs, OSFI
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