OSFI Proposes to Amend the Liquidity Adequacy Requirements for Banks
OSFI proposed revisions to the Liquidity Adequacy Requirements (LAR) Guideline for banks. OSFI published the proposed drafts (with proposed changes highlighted in yellow) of Chapters 1,2, 4, and 5 of the LAR guideline. The comment period on this consultation ends on March 15, 2019. With the final version of the guideline, OSFI also plans to post a non-attributed summary of the comments received along with its responses to those comments. OSFI is targeting January 01, 2020 for implementation of the proposed revisions to the LAR guideline.
LAR guideline provides a framework for assessing the liquidity adequacy of banks, bank holding companies, federally regulated trust and loan companies and cooperative retail associations. In May 2014, OSFI issued LAR Chapter 2 (Liquidity Coverage Ratio (LCR)), which came into force as of January 01, 2015, along with several other liquidity monitoring tools. With these proposed revisions, OSFI aims to ensure that the LAR Guideline remains comprehensive and current with respect to identifying and monitoring liquidity risk of the institutions it regulates. Specifically, draft Chapters 2 and 4 introduce revisions to the treatment of less stable retail deposits that further distinguish between certain types of deposits that exhibit higher risk of withdrawal. Chapter 5 introduces an additional liquidity monitoring tool, the Liquidity Activity Monitor (LAM), which collects frequent and timely key account balances from select institutions and is designed to improve the ability to monitor changes in the institutions’ funding components.
Since the financial crisis of 2008, liquidity risk management has continued to be a key area of focus for deposit-taking institutions and supervisors. The deposit-taking institutions are expected to have a liquidity risk management framework that, among other things, ensures they maintain sufficient liquidity to withstand a stressed environment. The LAR Guideline defines and assigns run-off rates to various categories of funding, according to the degree to which those sources of funding would be at risk under stress conditions. Since the Liquidity Coverage Ratio (LCR) and Net Cumulative Cash Flow (NCCF) were first issued in 2014, deposit-taking institutions’ funding models and deposit product offerings have continued to evolve. Given these developments, OSFI has reassessed the assumptions built into its regulatory liquidity metrics, particularly those related to the stability of funding sources, to ensure that the metrics remain appropriate in maintaining a resilient banking sector. With the final version of the guideline, OSFI will also post a non-attributed summary of comments received along with its responses.
Related Links
- Notification
- Impact Statement
- Draft of Chapter 1
- Draft of Chapter 2
- Draft of Chapter 4
- Draft of Chapter 5
Comment Due Date: March 15, 2019
Keywords: Americas, Canada, Banking, Liquidity Risk, LAR Guideline, ALMM, Liquidity Activity Monitor, OSFI
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.