OSFI issued a letter outlining how federally regulated banks should treat the new capital made available to small and medium-size enterprises (SME) through the recently announced government programs. The government of Canada announced, on March 27, 2020, that it is making additional investments to support Canadian businesses dealing with the economic impact of COVID-19. The OSFI letter sets out how these exposures should be treated by deposit-taking institutions under the Capital Adequacy Requirements and Leverage Requirements Guidelines.
The OSFI letter is addressed to banks, bank holding companies, and federally regulated trust and loan companies. OSFI has specified the following capital treatment for each program:
- Canada Emergency Business Account. Banks taking on these loans can exclude them from their risk-based capital and leverage ratios.
- New Export Development Canada loan guarantee for SMEs. Banks taking on these loans would treat the portion of the loan backed by the government as a sovereign exposure, with the remaining portion treated as a loan to the borrower. The entire amount of the loan would be included in the leverage ratio calculation.
- New Business Development Bank of Canada co-lending program for SMEs. Banks taking on these loans would need to account for the portion of the loan that they hold in their risk-based capital and leverage ratios.
By announcing the capital treatment for loans made through these programs, OSFI is providing timely direction for institutions, financial markets, and borrowers. These and other responsive regulatory adjustments—such as the adjustment of a number of regulatory capital, liquidity, and reporting requirements in the banking, insurance, and pensions sectors and 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 that its capital and liquidity requirements are fit-for-purpose during these extraordinary circumstances.
Keywords: Americas, Canada, Banking, SME, COVID-19, Regulatory Capital, CAR Guidelines, Leverage Requirements Guideline, Basel III, OSFI
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
BoE and FCA are supporting and encouraging liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA, instead of LIBOR, from October 27, 2020.
Deutsche Bundesbank published special schema files for securities holdings statistics (SHS), along with a document on the XML format description.
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
ESMA announced that it will recognize three central counterparties (CCPs) established in the UK as third-country CCPs, from January 01, 2021.
PRA published Version 02.04 of the PRA110 liquidity metric monitoring tool (PRA110 LMM tool).
FSB confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System (GLEIS) as the International Governance Body for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions, with effect from October 01, 2020.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.