Featured Product

    OSFI Revises Covered Bond Limit Calculation for Deposit Takers

    May 23, 2019

    OSFI is updating the covered bond limit calculation, which was last revised in December 2014. The updated covered bond ratio calculation will be effective from August 01, 2019 and is applicable for all deposit-taking institutions issuing covered bonds. Going forward, the total assets pledged by a deposit-taking institution for covered bonds must not, at any time, represent more than 5.5% of the on-balance-sheet assets of an issuer.

    To improve simplicity of the covered bond limit calculation, OSFI is replacing the Assets to Capital Multiple (ACM) proxy of total assets with on-balance sheet assets as reported on the regulatory balance sheet return (M4). OSFI is also updating the numerator of the calculation to better reflect the amount of assets encumbered through covered bonds by capturing the overcollateralization associated with these instruments. By definition, this amount will always be higher than the notional amount of covered bonds issued.

    The intent of these updates is to neither increase nor decrease the covered bond issuance capacity for deposit-taking institutions. However, to account for overcollateralization requirements associated with these instruments, the level of the covered bond limit needs to be higher than the current 4% level, which limited notional amounts of covered bonds outstanding. Thus, going forward, total assets pledged by a deposit-taking institution for covered bonds must not, at any time, represent more than 5.5% of the issuer’s on-balance sheet assets. In addition, OSFI will continue to impose the following conditions:

    • If at any time, the 5.5% limit is exceeded, the deposit-taking institution must notify OSFI in a timely manner. Excesses due to factors beyond the control of the issuing institution, such as foreign exchange fluctuations, will not require the deposit-taking institution to take action to reduce the amount outstanding. For other excesses, the deposit-taking institution must provide a plan to OSFI, showing how the deposit-taking institution proposes to eliminate the excess quickly.
    • OSFI expects pledging policies of deposit-taking institution to specifically take into account the issuance of covered bonds and the pledging of additional collateral to meet higher overcollateralization requirements, consistent with the limits and conditions contained in this letter.

     

    Related Links: OSFI Letter

    Effective Date: August 01, 2019

    Keywords: Americas, Banking, Securities, Covered Bond Limit Calculation, Basel III, Reporting, Covered Bonds, OSFI

    Featured Experts
    Related Articles
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    News

    FINMA Adjusts Deadlines for COVID-19 Relief Measures for Banks

    FINMA published guidance (06/2020) on extending or discontinuing various exemptions that were granted due to the COVID-19 crisis.

    May 19, 2020 WebPage Regulatory News
    News

    SRB Consults on Standardized Data Set for Bank Valuation in Resolution

    SRB launched a consultation on the minimum data needed for valuation of a bank in resolution.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5203