Vol. 147, No. 42 — October 19, 2013

By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law

Statutory authority

Canada Deposit Insurance Corporation Act

Sponsoring agency

Canada Deposit Insurance Corporation

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the By-law.)

Description

The Board of Directors of the Canada Deposit Insurance Corporation (“CDIC”) made the Differential Premiums By-law (the “By-law”) on March 3, 1999, pursuant to subsection 21(2) and paragraph 11(2)(g) of the Canada Deposit Insurance Corporation Act (“CDIC Act”). Subsection 21(2) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws establishing a system of classifying member institutions into different categories, setting out the criteria or factors the CDIC will consider in classifying members into categories, establishing the procedures the CDIC will follow in classifying members, and fixing the amount of, or providing a manner of determining the amount of, the annual premium applicable to each category. The CDIC Board of Directors amended the By-law on January 12 and December 6, 2000, July 26, 2001, March 7, 2002, March 3, 2004, February 9 and April 15, 2005, February 8 and December 6, 2006, December 3, 2008, December 2, 2009, December 8, 2010, December 7, 2011, and December 5, 2012.

The CDIC annually reviews the By-law to ensure that it remains up to date. As a result of the review, it was noted that technical amendments need to be made to section 4.1 and to Schedule 2, Part 2, Reporting Form (Reporting Form), of the By-law to reflect changes to regulatory forms and required capital ratios. The changes are reflected in the proposed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (“Amending By-law”).

The following table provides more detail about the amendments, which are all technical in nature.

AMENDING BY-LAW SECTION(S)

EXPLANATION

 

By-law

1

Section 4.1 and title — repealed. Refers to a one-time insurance premium adjustment that was only available for the 2012 premium year.

 

Schedule 2, Part 2, Reporting Form

2

Referencing item 1 — Capital Adequacy Measures:

  • Subsection 2(1): Formula needs to be amended. The Basel III Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR) now refers to “Total Capital for Purposes of ACM (capital on transitional basis)” and no longer to “Total Adjusted Net Tier 1 and Adjusted Tier 2 Capital.”
  • Subsection 2(2): Element 1.1.1 needs to be amended to reflect a line item reference change and element 1.1.2 needs to be amended to reflect both the BCAR change noted above for subsection 2(1) and a line item change.
  • Subsection 2(3) amends the title to Net Tier 1 Capital to reflect the current wording in the BCAR form.
  • Subsection 2(4) amends elements 1.2.1 and 1.2.2 to reflect both changes to line item references and to the description of Net Tier 1 Capital as set out in the BCAR form.
  • Subsection 2(5) amends element 1.3.1 to reflect line item reference changes in the BCAR form.
  • Subsection 2(6) amends Range of Results to incorporate the regulatory requirements for both the Tier 1 Risk-Based Capital Ratio and Total Risk-Based Capital Ratio that came into effect in January of 2013.

3

Referencing item 6 — Net Impaired Assets (including net unrealized losses on securities) to Total Capital

  • Subsection 3(1) regarding element 6.2: change of title to read “Individual allowance for impairment” to reflect International Financial Reporting Standards (IFRS) terminology change.
  • Subsections 3(2) and (6) regarding heading of Table 6A and Table 6B: Amended to include current title of the Capital Adequacy Requirements (CAR) 2013Guideline.
  • Subsection 3(3) regarding Table 6A column heading changed to read “Individual allowance for impairment” reflecting IFRS terminology change.
  • Subsections 3(4) and (5) regarding Table 6A — reference to Undrawn commitments is expanded to take into account both the credit conversion factors for the standardized approach as well as the Advanced IRB Approach if utilized.

4

Referencing item 7 — Three-Year Moving Average Asset Growth

  • Since this element uses four years of asset data, subsections 4(1), (2) and (3) modify the item to incorporate the most recent four years of data and cross reference to the applicable BCAR form line items for those years.

5

Referencing item 8 — Real Estate Asset Concentration

  • Element 8.1 amended to exclude from the concentration measure those residential mortgages that are NHA MBS pooled and unsold.

6

Repeals the certification as to compliance with the Data System Requirements By-law, which certification is now included in the Return of Insured Deposits.

7

The title of the form “Basel II Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR)” throughout the Reporting Form is changed to “Basel III Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR).”

8

Amending By-law comes into force on registration.

Alternatives

There are no available alternatives. The CDIC Act specifically provides that the criteria or factors to be taken into account in determining the category in which a member institution is classified and fixing or establishing the method of determining the amount of the annual premium applicable to each category may only be made by by-law.

Benefits and costs

No additional costs should be attributed directly to these changes.

Consultation

Member institutions have been advised directly to expect these technical changes. As the changes are technical in nature, only consultation through prepublication in Part Ⅰ of the Canada Gazette is necessary.

Compliance and enforcement

There are no compliance or enforcement issues.

Contact

Sheila Salloum
Director
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 5W5
Telephone: 613-947-0257
Fax: 613-996-6095
Email: ssalloum@cdic.ca

PROPOSED REGULATORY TEXT

Notice is given that the Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(g) (see footnote a) and subsection 21(2) (see footnote b) of the Canada Deposit Insurance Corporation Act (see footnote c), proposes to make the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

Interested persons may make representations concerning the proposed By-law within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Sheila Salloum, Director, Insurance, Insurance and Risk Assessment Division, Canada Deposit Insurance Corporation, 50 O’Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5 (email: ssalloum@cdic.ca).

Ottawa, October 9, 2013

MICHÈLE BOURQUE
President and Chief Executive Officer
Canada Deposit Insurance Corporation

BY-LAW AMENDING THE CANADA DEPOSIT INSURANCE
CORPORATION DIFFERENTIAL PREMIUMS BY-LAW

AMENDMENTS

1. Section 4.1 of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) and the heading before it are repealed.

2. (1) The denominator of the formula under the heading “Formula:” in element 1.1 of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by “Total Capital for Purposes of ACM (capital on transitional basis)”.

(2) Elements 1.1.1 and 1.1.2 of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law are replaced by the following:

1.1.1 Net On- and Off-Balance Sheet Assets

Indicate the net on- and off-balance sheet assets as set out for item “L” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form.

1.1.2 Total Capital for Purposes of ACM (Capital on transitional basis)

Indicate the total capital for purposes of ACM (capital on transitional basis) as set out for item “M” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form.

(3) The numerator of the formula under the heading “Formula:” in element 1.2 of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by “Net Tier 1 Capital”.

(4) Elements 1.2.1 and 1.2.2 of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law are replaced by the following:

1.2.1 Net Tier 1 Capital

Indicate the net tier 1 capital as set out for item “B” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form.

1.2.2 Adjusted Risk-Weighted Assets

Indicate the adjusted risk-weighted assets as set out for item “E” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form.

(5) Element 1.3.1 of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

1.3.1 Total Capital

Indicate the total capital as set out for item “C” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form.

(6) The portion of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law beginning with the heading “Range of Results” and ending before item 2 is replaced by the following:

Range of Results

Assets to Capital Multiple

Tier 1 Risk-based Capital Ratio

Total Risk-based Capital Ratio

Score

Assets to capital multiple (1.1) is

≤ the multiple authorized by the regulator (1.1.3)

Tier 1 risk-based capital ratio (1.2) is

≥ 8.5%

Total risk-based capital ratio (1.3) is

> 10.5%

20

Assets to capital multiple (1.1) is

≤ the multiple authorized by the regulator (1.1.3)

Tier 1 risk-based capital ratio (1.2) is

≥ 5.5% and < 8.5%

Total risk-based capital ratio (1.3) is

≥ 10.5%

13

Assets to capital multiple (1.1) is

> the multiple authorized by the regulator (1.1.3)

Tier 1 risk-based capital ratio (1.2) is

< 5.5%

Total risk-based capital ratio (1.3) is

< 10.5%

0

1.4 Capital Adequacy Score

 

3. (1) Element 6.2 of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

6.2 Net Impaired Off-Balance Sheet Assets

Calculate the net impaired off-balance sheet assets by subtracting the total of the column “Individual allowance for impairment” in Table 6A from the total of the column “Credit equivalent” in that Table. If the result is negative, report “zero”.

(2) Table 6A of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Table 6A — Impaired Off-balance Sheet Assets

(Complete Table 6A as of the end of the fiscal year ending in the year preceding the filing year, referring to Schedule 39 - Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures and Schedule 40 - Derivative Contracts of the BCAR form and to the Capital Adequacy Requirements (CAR) 2013 Guideline of the Guidelines.)

Impaired Instruments

Notional principal amount
a

Credit conversion factor
b

Credit equivalent (a × b)

Individual allowance for impairment

Direct credit substitutes – excluding credit derivatives

 

100%

   

Transaction-related contingencies

 

50%

   

Short-term self-liquidating trade-related contingencies

 

20%

   

Sale & repurchase agreements

 

100%

   

Forward asset purchases

 

100%

   

Forward forward deposits

 

100%

   

Partly paid shares and securities

 

100%

   

NIFs & RUFs

 

50%

   

Undrawn commitments – excluding securitization exposure

Standardized Approach

 

0%

   
 

20%

   
 

50%

   

Advanced IRB Approach

  (see footnote 2)    
  (see footnote 3)    
  (see footnote 4)    
Impaired OTC Derivative Contracts    
Credit derivative contracts (see footnote 5)  
Interest rate contracts (see footnote 6)  
Foreign exchange & gold contracts (see footnote 7)  
Equity-linked contracts (see footnote 8)  
Precious metals (other than gold) contracts (see footnote 9)  
Other commodity contracts (see footnote 10)  

Total

   

 

Use these totals to calculate element 6.2

(3) The portion of Table 6B of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Table 6B — Impaired OTC Derivative Contracts” beginning with “(Complete Table 6B” and ending with “(effective Q1 2008).)” is replaced by the following:

(Complete Table 6B as of the end of the fiscal year ending in the year preceding the filing year, referring to Schedule 39 - Off-balance Sheet Exposures Excluding Derivatives and Securitization Exposures and Schedule 40 - Derivative Contracts of the BCAR form and to the Capital Adequacy Requirements (CAR) 2013 Guideline of the Guidelines.)

4. (1) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Assets for Years 1 to 4” beginning with the expression “For fiscal years ending in 2009, the total of” and ending before the expression “For fiscal years ending in 2010, the total of” is repealed.

(2) The expression “For fiscal years ending in 2011 or later, the total of” in item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Assets for Years 1 to 4” is replaced by “For fiscal years ending in 2011 and 2012, the total of”.

(3) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Assets for Years 1 to 4” is amended by adding the following before the reference to “Year 1:”:

For fiscal years ending in 2013 or later, the total of

  • (a) the amount of net on- and off-balance sheet assets set out for item “L” of Schedule 1 – Ratios and Assets to Capital Multiple Calculations of the BCAR form plus the transitional adjustment for grandfathered treatment of certain assets not derecognized under IFRS set out for item “A” of Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form;
  • (b) the total of the amounts set out in the column “Total” for items 1(a)(i)(A)(I) to (X) (Securitized Assets – Unrecognized – Institution’s own assets (bank originated or purchased) – Traditional securitizations) of Section I – Memo Items of the Consolidated Monthly Balance Sheet; and
  • (c) if applicable, the value of assets, acquired by the member institution in the fiscal year ending in the year preceding the filing year as a result of a merger or acquisition referred to in the fourth paragraph under the heading “THREE-YEAR MOVING AVERAGE ASSET GROWTH (%)”, for years 1, 2 and 3 below, where the value of those assets on the date of their acquisition exceeds 10% of the value of the consolidated assets of the member institution immediately before that merger or acquisition.

5. Element 8.1 of item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

8.1 Total Mortgage Loans

The total mortgage loans is the total of the amounts set out in the column “Total” for items 3(b)(i)(A), (C) and (D) and 3(b)(ii) (Mortgages, less allowance for impairment) of Section I — Assets of the Consolidated Monthly Balance Sheet, before deducting any allowance for impairment.

6. The heading “Certification Relating to the Canada Deposit Insurance Corporation Data and System Requirements By-law” at the end of the Reporting Form set out in Part 2 of Schedule 2 to the By-law and the portion after that heading are repealed.

7. Part 2 of Schedule 2 to the By-law is amended by replacing “Basel II Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR) form” with “Basel III Capital Reporting — Credit, Market and Operational Risk (BCAR) form” in the following items:

  • (a) the second paragraph of the portion of element 1.1 of item 1 under the heading “Elements”;
  • (b) the second paragraph of the portion of element 1.2 of item 1 under the heading “Elements”;
  • (c) the second paragraph of the portion of element 1.3 of item 1 under the heading “Elements”;
  • (d) paragraph (b) of the portion of item 2 under the heading “Elements”;
  • (e) paragraph (c) of the portion of item 6 under the heading “Elements”; and
  • (f) the second paragraph of the portion of item 7 under the heading “Elements”.

COMING INTO FORCE

8. This By-law comes into force on the day on which it is registered.

[42-1-o]

  • Footnote a
    R.S., c. 18 (3rd Supp.), s. 51
  • Footnote b
    S.C. 1996, c. 6, s. 27
  • Footnote c
    R.S., c. C-3
  • Footnote 1
    SOR/99-120
  • Footnote 2
    Refer to sections 6.3.2 and 6.4.2 of the Capital Adequacy Requirements (CAR) 2013 Guideline of the Guidelines to determine the applicable credit conversion factor.
  • Footnote 3
    Refer to sections 6.3.2 and 6.4.2 of the Capital Adequacy Requirements (CAR) 2013 Guideline of the Guidelines to determine the applicable credit conversion factor.
  • Footnote 4
    Refer to sections 6.3.2 and 6.4.2 of the Capital Adequacy Requirements (CAR) 2013 Guideline of the Guidelines to determine the applicable credit conversion factor.
  • Footnote 5
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.
  • Footnote 6
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.
  • Footnote 7
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.
  • Footnote 8
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.
  • Footnote 9
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.
  • Footnote 10
    Fill in the total amounts of the contracts under the heading “Credit equivalent amount” from Table 6B.