OSFI Proposes Revisions to Liquidity Adequacy Requirements Guideline

By Regulatory News

December 19, 2018

Basel III

OSFI is proposing revisions to the Liquidity Adequacy Requirements (LAR) Guideline, the comment period for which ends on February 01, 2019. OSFI issued for consultation Chapter 3 on Net Stable Funding Ratio (NSFR) and proposed revisions to Chapter 1 on Overview of the LAR guideline. OSFI also published the impact analysis for the LAR guideline. The guideline will come into effect on January 01, 2020 and will apply to the domestic systemically important banks (D-SIBs). OSFI has designated six institutions as D-SIBs—namely, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank of Canada. An assessment of the approach for small and medium-size institutions is being undertaken and further guidance will be provided going forward.

Chapter 3 of LAR guideline transposes into domestic guidance the NSFR rules of BCBS, which were issued in October 2014. NSFR requires institutions to maintain a stable funding profile in relation to their on- and off-balance sheet activities, thus reducing the likelihood that disruptions to an institution's regular sources of funding will erode its liquidity position in a way that could increase the risk of its failure and potentially lead to broader systemic stress. NSFR limits over reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes a more stable funding profile. The LAR guideline (Chapter 3 and corresponding amendments to Chapter 1 Overview) is to be updated to incorporate the NSFR standard, which focuses on the stability of an institution's funding profile over a longer term (one-year) horizon. Chapter 3 incorporates the NSFR rules issued by BCBS in October 2014 into the LAR Guideline. NSFR, along with the short-term stress-focused liquidity coverage ratio, set minimum liquidity standards for banks, bank holding companies, federally regulated trust and loan companies, and cooperative retail associations.

Related Links

Comment Due Date: February 01, 2019

Effective Date: January 01, 2020 (NSFR for D-SIBs)

Keywords: Americas, Canada, Banking, Basel III, LAR, NSFR, Liquidity Risk, OSFI

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