June 16, 2017

OSFI released, for comment, a draft guideline on total loss-absorbing capacity (TLAC). This guideline will apply to the domestic systemically important banks (D-SIBs) in Canada, as part of the Federal government’s Bank Recapitalization (Bail-in) Regime. OSFI is issuing its draft TLAC guideline in conjunction with the pre-publication of certain bail-in regulations by the Department of Finance. The deadline for submitting comments on the draft TLAC guideline is July 17, 2017.

The draft TLAC guideline of OSFI is consistent with the FSB's TLAC standard for global systemically important banks (G-SIBs), but is tailored to the Canadian context. FSB published its final TLAC standard for G-SIBs in November 2015. Public  disclosure of D-SIBs’ TLAC ratios will begin for the fiscal quarter commencing on November 01, 2018; however, D-SIBs will have until November 01, 2021 to fully meet the TLAC requirements. OSFI will release the final TLAC guideline later this year. The TLAC framework, which Canada is extending to its six largest banks, is designed to ensure that a systemically important bank has sufficient loss-absorbing capacity to support its recapitalization in the unlikely event of its failure. The framework would facilitate an orderly resolution of a bank to allow it to remain open and operating without requiring public funds or threatening financial stability.

 

Moreover, the regulatory capital adjustments for the treatment of TLAC holdings are being implemented through revisions to OSFI’s Capital Adequacy Requirements (CAR) guideline. The draft changes will align OSFI’s expectations with the Basel Committee on Banking  Supervision’s standard on the regulatory capital treatment of banks’ holdings of TLAC instruments. OSFI is proposing to extend the Basel III standard to the TLAC holdings issued by Canadian D-SIBs. These changes will be effective in 2018. Along with the Capital Adequacy Requirements (CAR) guideline and the Leverage Requirements guidelinethe proposed TLAC guideline will provide OSFI with a robust framework to assess a D-SIB’s minimum capacity to absorb  losses. The deadline for submitting comments on the revisions to the CAR guideline is also  July  17, 2017.

 

Related Links

TLAC Guideline of OSFI

Bail-In Regulations of OSFI

Final TLAC Standard of FSB

Basel Standard on TLAC Holdings

Keywords: Americas, OSFI, Banking, TLAC, Basel III, CAR, Canada

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