OSFI to Revert to Pre-Pandemic SVaR Multiplier for Market Risk Capital
OSFI announced the unwinding of regulatory adjustments to the market risk capital requirements for banks, effective May 01, 2021. The level of Stressed Value-at-Risk (SVaR) multipliers applied by banks will be returned to the pre-pandemic levels now that the financial markets have stabilized. For institutions with a fiscal year-end in October, this means reverting to the SVaR multiplier that was in place on January 31, 2020. For institutions with a fiscal year-end in December, this means reverting to the SVaR multiplier that was in place on December 31, 2019. In this context, OSFI also updated the frequently asked questions (FAQs) on COVID-19 measures for federally regulated financial institutions.
The current change aligns with the OSFI assessment of SVaR multiplier adjustment against the four criteria for regulatory and supervisory adjustments—that is, the adjustment would need to remain credible, consistent, necessary, and fit-for-purpose. In the backdrop of pandemic, in the March 27, 2020 letter, OSFI had announced that, on a temporary basis, institutions subject to market risk capital requirements and using internal models may reduce the SVaR multiplier they use by two. This meant that the SVaR multipliers would temporarily not be subject to a minimum value of three as prescribed in Chapter 9 of the Capital Adequacy Requirements Guideline of OSFI. SVaR multiplier is a component of the market risk capital requirements that ensures that a minimum amount of capital is held against stress period, with a reduced multiplier implying a lower capital requirement.
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Keywords: Americas, Canada, Banking, Market Risk, COVID-19, Regulatory Capital, Stressed Value at Risk, SVAR, CAR Guidance, Basel, FAQ, OSFI
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