OTTAWA, March 30, 2020 /CNW/ - Today the Office of the Superintendent of Financial Institutions (OSFI) issued direction on how federally regulated deposit taking institutions (DTIs) should treat new capital made available to small and medium sized enterprises through recently announced government programs.
By announcing the capital treatment for loans made through these programs, OSFI is providing timely direction for institutions, financial markets and borrowers. These and other responsive regulatory adjustments and ongoing supervisory vigilance ensure that OSFI's guidance is appropriate for these extraordinary circumstances while remaining risk-focused and forward-looking.
OSFI will continue to look for ways that ensure its capital and liquidity requirements are fit for purpose during these extraordinary circumstances.
The capital treatment for each program is summarized as:
- Canada Emergency Business Account
- DTIs taking on these loans can exclude them from their risk-based capital and leverage ratios.
- New Export Development Canada (EDC) loan guarantee for small and medium enterprises
- DTIs taking on these loans would treat the portion of the loan backed by the Government as a sovereign exposure, with the remaining portion treated as a loan to the borrower. The entire amount of the loan would be included in its leverage ratio calculation.
- New Business Development Bank of Canada (BDC) co-lending program for small and medium enterprises
- DTIs taking on these loans would need to account for the portion of the loan that they hold in their risk-based capital and leverage ratios.
The loans and guarantees offered through these temporary measures fall within OSFI's existing capital framework. Participating lenders remain responsible for their underwriting practices.
- OSFI's March 30 letter to DTI's: Capital treatment for exposures acquired through new Government of Canada programs
- Department of Finance backgrounder: Additional Support for Canadian Businesses from the Economic Impact of COVID-19, New Loan Programs for Businesses, March 27, 2020.
- OSFI announcement: OSFI announces regulatory flexibility to support COVID-19 efforts, March 27, 2020
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.
SOURCE Office of the Superintendent of Financial Institutions
For further information: Media Contact: OSFI - Public Affairs, [email protected], 343-550-9373