OSFI announced that it is gradually phasing out the special capital treatment of loan and insurance premium payment deferrals that was provided to banks and insurers at the start of the COVID-19 pandemic. The OSFI decision to discontinue the special regulatory capital treatment of deferrals, which permit loan and insurance premium payment deferrals to be treated as performing, reflects the temporary nature of these measures and will ensure that reporting requirements remain accurate in reflecting credit risk. OSFI has published additional details regarding this in a letter that was issued to federally regulated deposit-taking institutions and in the updated frequently asked questions (FAQs) on pandemic-related regulatory measures.
OSFI is announcing the following updates to the special capital treatment of loans subject to payment deferrals:
- Loans granted payment deferrals before August 31 will continue to be treated as performing loans under the Capital Adequacy Requirements (CAR) Guideline for the duration of the deferral, up to a maximum of six calendar months from the effective date of the deferral.
- Loans granted new payment deferrals after August 30 and on or before September 30 will be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of three calendar months from the approval date of the deferral.
- Loans granted payment deferrals with approval dates after September 30, 2020 will not be eligible for the special capital treatment.
This change supports the accurate measurement of the capital needs of deposit-taking institutions and the long-term integrity of the OSFI capital framework. While the special capital treatment and regulatory flexibility related to payment deferrals was warranted at the onset of COVID-19, as both lenders and borrowers adapted to the extraordinary circumstances and unprecedented disruptions related to the pandemic, banks are now in a better position to employ their business-as-usual alternatives to support troubled borrowers. Thus, the special capital treatment for loans with payment deferrals is no longer warranted and is being phased out through the changes being announced.
Keywords: Americas, Canada, Banking, COVID-19, Payment Deferrals, Regulatory Capital, Basel, Credit Risk, FAQ, OSFI
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.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
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.
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.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
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.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
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.
The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.