AMF Updates Liquidity Adequacy Guideline for Banks
Autorité des marchés financiers (AMF) of Quebec, Canada, updated the liquidity adequacy guidelines, which has an effective date of January 1, 2023.
This updated guideline applies to all the concerned "deposit institutions" that fall into two broad groups: domestic systemically important financial institutions and small and medium-sized deposit institutions (SMDIs). SMDIs are then segmented into three categories. The categorization of SMDIs, along with their respective liquidity requirements have been addressed in this guideline. The guideline is based on Basel III requirements and it addresses multiple quantitative liquidity measures and tools. These measures and tools include the liquidity coverage ratio (LCR), the net stable funding ratio (NSFR), the net cumulative cash flow (NCCF), and the cash flow statement metric supervisory tools, liquidity risk monitoring tools, and intraday liquidity monitoring tools. The domestic systemically important financial institutions must meet all the requirements of the guideline while SMDIs must apply the requirements specified for their category.
The guideline stipulates that, to operationalize the above categorization process for SMDIs, total assets and total loans of a financial institution are calculated based on average of the amounts reported in the institution’s quarterly statements from the previous fiscal year. If an institution crosses a threshold, it will be given one year to implement the requirements of its new category. For the initial implementation in Q1 2023, the threshold will be calculated based on total assets and total loans from fiscal 2021. New SMDIs will be categorized based on the planned activities and balance sheet in the business plan of an institution. The categorization will be confirmed at the time the AMF issues an authorization. However, AMF has the discretion to move an institution into a different category. Factors the AMF may consider for this include:
- Changes in an institution's activities that may not yet be reflected in its balance sheet
- An institution’s business model, where its category, based on the general criteria above, would result in capital requirements that do not appropriately reflect the nature of its activities and risks
Keywords: Americas, Canada, Quebec, Banking, Basel, Liquidity Risk, D-SIBs, Proportionality, AMF
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