December 13, 2018

OSFI proposed revisions to the Guideline B-2 on Large Exposure Limits, for implementation in the first quarter of 2020. The revisions are intended for Canadian domestic systemically important banks (D-SIBs) and their OSFI regulated deposit-taking institution subsidiaries. Comment period on the consultation closes on February 01, 2019. OSFI aims to issue a final version of Guideline B-2 for D-SIBs and their OSFI regulated DTI subsidiaries in Spring 2019, with an effective date of November 01, 2019.

The draft guideline applies to D-SIBs on a consolidated basis. The application of this guideline at the consolidated level means that an institution is expected to consider all exposures to third parties across the relevant regulatory consolidated group and compare the aggregate of those exposures to the group’s eligible capital base, defined in this guideline as Tier 1 Capital as specified in Chapter 2 of the Capital Adequacy Requirements (CAR) Guideline. The capital measure used for this guideline is the Tier 1 Capital measure applying at that time under the risk-based capital framework. The guideline and specifies a number of revisions to the large exposure limit calculation, including the following:

  • Moving the eligible capital base from Total capital to Tier 1 capital
  • Introducing tighter limits for exposures to systemically important banks
  • Providing for the recognition of eligible credit risk mitigation techniques—that is, exposures are measured on a net basis rather than a gross basis
  • Offering additional guidance for determining groups of connected counterparties

The guideline, which was issued in 1994, establishes limits for exposures of a bank to a single counterparty (including connected counterparties), measured as a percentage of capital. BCBS had published its standard on large exposure risk management in 2014. This draft guideline incorporates the BCBS guidance to reflect current risk management sound practices and provides additional guidance on methods OSFI expects D-SIBs to use for identifying, measuring, managing, and monitoring large exposures. OSFI expects to issue the final guideline in Spring 2019, along with a non-attributed summary of comments received and OSFI’s response to these comments. 

 

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Comment Due Date: February 01, 2019

Keywords: Americas, Canada, Banking, Large Exposures, Basel III, Guideline B-2, D-SIBs, Concentration Risk, OSFI