OSFI unwinds regulatory adjustments for banks subject to market risk capital adequacy rules Français

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Office of the Superintendent of Financial Institutions

Mar 16, 2021, 10:19 ET

OTTAWA, ON, March 16, 2021 /CNW/ - Today, the Office of the Superintendent of Financial Institutions (OSFI) announced the unwinding of regulatory adjustments to the market risk capital requirements for banks, effective May 1, 2021.

One year ago, OSFI introduced extraordinary regulatory adjustments to support the financial and operational resilience of federally regulated financial institutions (FRFIs) in response to the initial wave of the COVID-19 pandemic.

These measures included a reduction in the Stressed Value at Risk ("SVaR") multiplier, a component of the market risk capital requirements that ensures that a minimum amount of capital is held against stress periods. At the beginning of the pandemic, the volatility in capital markets increased such that the level of additional conservatism achieved through the SVaR multiplier was temporarily not needed and banks were permitted to reduce the level of the multipliers used.

Throughout the past year, OSFI has continued to monitor banks' market risk capital requirements and the impact of the SVaR multipliers. Now that financial markets have stabilized, the level of the SVaR multipliers applied by banks will also be returned to what they were pre-pandemic.

OSFI's regulatory and supervisory adjustments will continue to be credible, consistent, necessary and fit-for-purpose in the Canadian context. OSFI will closely monitor conditions and remains ready to take any further action, including unwinding temporary measures, as required.

For specific guidance, please see the letter issued to Federally Regulated Deposit-Taking Institutions (DTIs) subject to market risk capital requirements.

Quote
"The uncertainty caused by the first wave of the COVID-19 pandemic made it necessary to adjust certain regulatory requirements such as the Stressed Value at Risk measure. With market conditions stabilizing, it's fitting that the SVaR multiplier should return to its pre-pandemic level too."

Ben Gully, Assistant Superintendent, Regulation Sector

Quick facts

  • The measures introduced by OSFI at the end of March 2020 provided relief to banks' capital, liquidity and reporting requirements. In addition, such measures delayed the implementation deadlines for a number of planned regulatory changes.
  • The SVaR multiplier is part of OSFI's Capital Adequacy Requirements, a framework for assessing the capital adequacy of federally regulated banks, bank holding companies, federally regulated trust and loan companies and cooperative retail associations.
  • The temporary reduction in the SVaR multiplier by two notches – from a multiplier of at least three to a multiplier of at least one – was introduced on March 27, 2020 to allow institutions flexibility in addressing stressed conditions triggered by the COVID-19 pandemic, while promoting financial resilience and stability.
  • While appropriate when instituted, such accommodation was always intended to be temporary in nature and to eventually be unwound.

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About

The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks. OSFI supervises more than 400 federally regulated financial institutions and 1,200 pension plans to determine whether they are in sound financial condition and meeting their prudential requirements.

SOURCE Office of the Superintendent of Financial Institutions

Media Contact: OSFI - Public Affairs, [email protected], 343-550-9373

Related Links

http://www.osfi-bsif.gc.ca/

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Office of the Superintendent of Financial Institutions