OSFI Outlines Capital Treatment for Some COVID-19 Mitigation Measures
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.
Related Links
Keywords: Americas, Canada, Banking, SME, COVID-19, Regulatory Capital, CAR Guidelines, Leverage Requirements Guideline, Basel III, 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.
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
HKMA Announces Deferral of Implementation of Final Basel III PackageRelated Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.
