The Office of the Superintendent of Financial Institutions (OSFI) confirmed that the exclusion of sovereign-issued securities from the leverage ratio exposure measure for deposit-taking institutions, introduced at the outset of the COVID-19 pandemic, will not be extended past December 31, 2021. However, the central bank reserves will continue to be excluded from the leverage ratio exposure measure for deposit-taking institutions.
In April 2020, in response to the uncertainty caused by COVID-19 pandemic, OSFI had allowed the deposit-taking institutions to temporarily exclude central bank reserves and sovereign-issued securities that qualify as High Quality Liquid Assets (HQLA) under the Liquidity Adequacy Requirements Guideline from their leverage ratio exposure measures. Then, in November 2020, OSFI had extended this temporary measure until December 31, 2021 to continue supporting the economy as it coped with the effects of the pandemic. Through its ongoing monitoring efforts, OSFI has concluded that the level of uncertainty in the outlook for economic and financial conditions has reduced from when the leverage ratio exclusions were originally announced and subsequently extended. This means that, starting from January 01, 2022, the deposit-taking institutions will be required to include sovereign-issued securities qualifying as HQLA in their leverage ratio exposure measures. The decision to allow the temporary exclusion of sovereign-issued securities to expire is in line with the previous OSFI decisions to discontinue other temporary relief measures introduced in response to COVID-19 when they are no longer credible, consistent, necessary and fit-for-purpose in the Canadian context. OSFI will closely monitor conditions and remains ready to take any further action, including the unwinding of other temporary measures, as required.
Keywords: Americas, Canada, Banking, COVID-19, Leverage Ratio, HQLA, Regulatory Capital, Central Bank Reserves, Sovereign Securities, Basel, OSFI
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