The Office of the Superintendent of Financial Institutions (OSFI) on Tuesday issued orders officially designating Canada’s six largest banks as domestic systemically important banks (D-SIBs) and set the banks’ minimum total loss absorbing capacity (TLAC) requirements.
The orders require banks to hold additional capital and to adhere to the requirements of Canada’s new bail-in regime.
The federal banking regulator issued orders to Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada (RBC) and Toronto-Dominion Bank, setting the minimum risk-based TLAC ratio at 21.5% of risk-weighted assets and the minimum TLAC leverage ratio at 6.75%
The formal designation of the banks as D-SIBs will allow them to be recapitalized and to remain operating, if they ran into serious financial trouble, without a taxpayer-funded bailout, or threatening the stability of the Canadian financial system, OSFI says in a news release.
The Financial Stability Board’s recent decision to designate RBC as a global systemically-important bank does not affect RBC’s status as a D-SIB, or the fact that the bail-in regime applies, OSFI adds.
The regulator unofficially identified the big six banks as D-SIBs back in 2013, and legislative changes in mid 2016 gave OSFI formal responsibility for overseeing the D-SIB requirements.
The development of a bail-in regime (which takes effect next month) and TLAC requirements are the final components of the risk management framework for D-SIBs, which was developed by the federal government in response to the global financial crisis.