OSFI Outlines Capital Treatment for COVID-19 Loan Guarantee Program
OSFI issued a letter to federally regulated deposit-taking institutions on the capital treatment of new loans to businesses through the Highly Affected Sectors Credit Availability Program (HASCAP). The government of Canada mandated the Business Development Bank of Canada (BDC) to set up the HASCAP loan guarantee program and work with eligible lenders to provide additional liquidity for Canadian businesses highly affected by the COVID-19 pandemic. OSFI expects federally regulated lenders to treat HASCAP loans as a sovereign exposure based on the BDC guarantee and to apply the relevant risk-weight under the Capital Adequacy Requirements Guideline of OSFI.
The OSFI letter is addressed to banks, bank holding companies, and federally regulated trust and loan companies. The letter specifies the following key points:
- The BDC guarantee can be recognized as a guarantee under the Capital Adequacy Requirements Guideline, as it meets the related operational requirements set out in paragraphs 75 and 76 of Chapter 5 of the Guideline.
- If there are currency or maturity mismatches, the amount of the guarantee recognized for capital purposes would need to be adjusted according to section 5.1.6 of the Capital Adequacy Requirements Guideline.
- Under the Standardized Approach to credit risk, the guaranteed loan would receive the risk-weight applicable to the government of Canada (0%), the guarantor.
- Under the Internal Ratings Based Approach to credit risk, the guaranteed loan would be treated with the Probability of Default substitution approach and/or the Loss Given Default adjustment approach as outlined in section 6.8.7 (ix) of the Capital Adequacy Requirements Guideline.
- In calculating the leverage ratio, the entire amount of the loan would need to be included in the exposure measure of the leverage ratio pursuant to the Leverage Requirements Guideline paragraph 12.
By announcing the capital treatment of this loan program, OSFI is providing timely direction for institutions, financial markets, and borrowers. These and other responsive regulatory adjustments, in addition to the ongoing supervisory vigilance, ensure that the OSFI guidance is appropriate for these extraordinary circumstances while remaining risk-focused and forward‑looking. OSFI will continue to look for ways to ensure its capital and liquidity requirements are fit for purpose during the pandemic.
Related Links
Keywords: Americas, Canada, Banking, COVID-19, Regulatory Capital, CAR Guideline Leverage Requirements Guideline, Basel, Guarantee Scheme, Loan Guarantee, Credit Risk, 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
Previous Article
HKMA Announces Success of Green Bond Offering from HKSARRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
HKMA Announces Launch of Data Repository on Sustainable Finance
The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
NGFS Report on Integration of G-Cubed Model into NGFS Scenarios
The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.