Vol. 149, No. 42 — October 17, 2015

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 Canada Deposit Insurance Corporation Differential Premiums By-law (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, December 5, 2012, December 4, 2013, and April 22, 2015.

The CDIC annually reviews this By-law to confirm it is technically up-to-date. As a result, technical amendments are included in the By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

The amendments are primarily being made to replace the Assets-to-Capital Multiple (ACM) with the new leverage ratio. In accordance with the Basel III framework, the Office of the Superintendent of Financial Institutions (OSFI) amended its Basel Capital Adequacy Reporting requirements by replacing the ACM with a new leverage ratio. It is therefore necessary to amend the By-law so that the CDIC’s approach to calculating members’ leverage ratios is consistent with the approach taken by OSFI.

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, all of which are technical in nature.

Amending By-law section By-law section Explanation
By-law
[1] 25.1(b) To correct the references in each of subparagraphs 25.1(b)(i) and (ii) to read “50 per cent.”
Schedule 2, Part 2, Reporting Form
[2] Item 1

As a result of a revised approach taken by the Office of the Superintendent of Financial Institutions, it is necessary to replace the Assets-to-Capital Multiple (ACM) with the Leverage Ratio (LR).

The amendments

  • (a) replace the ACM with the LR in the formula to calculate the Leverage Ratio;
  • (b) update each element of the formula to reflect the replacement of the ACM with the LR;
  • (c) update the instructions to replace references to the Basel III Capital Adequacy Reporting — Credit, Market and Operational Risk (BCAR) form with references to the Leverage Requirements Return (LRR), as the data elements for the LR are now taken from the LRR; and
  • (d) update the formula for calculating the LR Score to reflect the replacement of the ACM with the LR.
[3] Item 2 To revise the reference to “Fiscal” in the heading to correctly read “Filing.”
[4] Item 6 To accurately state the full name of the BCAR.
[5] Item 7 To clarify that the specified member institutions must indicate “N/A” not just for element 7, but also for element 7.5.
[6] Element 8 The amendment aligns the Differential Premium metrics with OSFI’s reporting forms.
Schedule 3, Scoring Grid — Quantitative Assessment, Part 1, Capital Adequacy
[7] Schedule 3 This schedule repeats each of the factors in the Range of Scores. It has been amended to reflect the replacement of the ACM with the LR.

Alternatives

There are no available alternatives. The amendments must be done by way of by-law.

Benefits and costs

No additional costs should be attributed directly to the changes.

Consultation

As the proposed amendments are technical in nature, only consultation by way of prepublication on October 17, 2015, in the Canada Gazette, Part I, is necessary.

Compliance and enforcement

There are no compliance or enforcement issues.

Contact

Joanne Lucas
Manager
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613-943-2773
Fax: 613-996-6095
Email: jlucas@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 Joanne Lucas, Manager, Insurance, Canada Deposit Insurance Corporation, 50 O’Connor Street, Ottawa, Ontario K1P 6L2 (email: jlucas@cdic.ca).

Ottawa, October 7, 2015

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. Subparagraphs 25.1(b)(i) and (ii) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) are replaced by the following:

2. 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 “1.1 Leverage Ratio” and ending before the heading “1.3 Tier 1 Capital Ratio (%)” is replaced by the following:

1.1 Leverage Ratio (%)

Formula:

Equation – Detailed information can be found in the surrounding text.

Complete the following:

Equation – Detailed information can be found in the surrounding text.

Elements

Use the instructions below to arrive at the elements of the formula.

Refer to the Leverage Requirements Return (LRR), Reporting Manual, completed in accordance with that Manual as of the end of the fiscal year ending in the year preceding the filing year.

1.1.1 Tier 1 Capital

Indicate the Tier 1 Capital as set out in Section 1 – Leverage Ratio Calculation of the LRR.

1.1.2 Total Exposures

Indicate the total exposures as set out in Section 1 – Leverage Ratio Calculation of the LRR.

1.1.3 Authorized Leverage Ratio (%)

Indicate the leverage ratio authorized by the institution’s regulator.

1.1.3 _____%

1.2 Leverage Ratio Score

Use the scoring grid below to determine the member institution’s leverage ratio score.

Range of Scores for Leverage Ratio Score

Leverage ratio (1.1) is ≥ 3% with a buffer of ≥ 10% of the leverage ratio authorized by the regulator (1.1.3)*

* For example, a member institution with an authorized leverage ratio of 5% must maintain a minimum buffer of 0.5% above its leverage ratio in order to score 10 points.

10
Leverage ratio (1.1) is ≥ 3% with a buffer of ≥ 0% but < 10% of the leverage ratio authorized by the regulator (1.1.3) 7
Leverage ratio (1.1) is < 3% or less than the leverage ratio authorized by the regulator (1.1.3) 0

1.2 Leverage Ratio Score

 

3. The heading “2.2 Adjusted Tier 1 Capital Risk-Weighted Assets as of the End of the preceding Fiscal Year” in item 2 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

2.2 Adjusted Tier 1 Capital Risk-Weighted Assets as of the End of the Preceding Filing Year

4. Paragraph (b) under the heading “Elements” in item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the English version of the By-law is replaced by the following:

5. The first paragraph under the heading “7. THREE-YEAR MOVING AVERAGE ASSET GROWTH (%)” in item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

If a member institution has been operating as a member institution for less than six fiscal years consisting of at least 12 months each (with the last fiscal year ending in the year preceding the filing year), it must indicate “N/A” (“not applicable”) for elements 7 and 7.5 but still fill in any of elements 7.1 to 7.4 that apply to it.

6. The paragraph under the heading “8-1.1.8 Impairment” in item 8-1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Impairment is the total amount set out in the column “Gross Impaired Assets” less the aggregate of the total amount set out in the column “Collective Allowance” and the total amount set out in the column “Individual Allowance” under Impaired Assets and Allowances in Section I – Memo Items of the Consolidated Monthly Balance Sheet.

7. The portion of items 1 to 3 of Part 1 of Schedule 3 to the By-law in column 1 is replaced by the following:

Item Column 1

Leverage Ratio
1. Leverage ratio is ≥ 3% with a buffer of ≥ 10% of the leverage ratio authorized by the regulator
2. Leverage ratio is ≥ 3% with a buffer of ≥ 0% but < 10% of the leverage ratio authorized by the regulator
3. Leverage ratio is < 3% or less than the leverage ratio authorized by the regulator

COMING INTO FORCE

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

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