OSFI to Phase Out Special Capital Treatment of COVID-19 Loans at Banks
OSFI announced that it is gradually phasing out the special capital treatment of loan and insurance premium payment deferrals that was provided to banks and insurers at the start of the COVID-19 pandemic. The OSFI decision to discontinue the special regulatory capital treatment of deferrals, which permit loan and insurance premium payment deferrals to be treated as performing, reflects the temporary nature of these measures and will ensure that reporting requirements remain accurate in reflecting credit risk. OSFI has published additional details regarding this in a letter that was issued to federally regulated deposit-taking institutions and in the updated frequently asked questions (FAQs) on pandemic-related regulatory measures.
OSFI is announcing the following updates to the special capital treatment of loans subject to payment deferrals:
- Loans granted payment deferrals before August 31 will continue to be treated as performing loans under the Capital Adequacy Requirements (CAR) Guideline for the duration of the deferral, up to a maximum of six calendar months from the effective date of the deferral.
- Loans granted new payment deferrals after August 30 and on or before September 30 will be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of three calendar months from the approval date of the deferral.
- Loans granted payment deferrals with approval dates after September 30, 2020 will not be eligible for the special capital treatment.
This change supports the accurate measurement of the capital needs of deposit-taking institutions and the long-term integrity of the OSFI capital framework. While the special capital treatment and regulatory flexibility related to payment deferrals was warranted at the onset of COVID-19, as both lenders and borrowers adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, banks are now in a better position to employ their business-as-usual alternatives to support troubled borrowers. Thus, the special capital treatment for loans with payment deferrals is no longer warranted and is being phased out through the changes being announced.
Related Links
Keywords: Americas, Canada, Banking, COVID-19, Payment Deferrals, Regulatory Capital, Basel, Credit Risk, FAQ, OSFI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
