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.
- 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