Vol. 151, No. 40 — October 7, 2017

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.)

Background

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, April 22, 2015, February 4, 2016, and December 7, 2016.

Issues

The CDIC annually reviews the By-law to confirm it is technically up to date. As a result, technical amendments are proposed by way of the By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (Amending By-law). The Amending By-law primarily targets the following two main issues.

1. Updates to the Three-Year Moving Asset Growth Ratio

The amendments are primarily being made to incorporate minor adjustments and clarifications in the calculation of the Three-Year Moving Asset Growth Ratio to retain the integrity of the measure.

2. Corrections and clarifications

The amendments remove grammatical errors and redundant references to dates and rates. Amendments further clarify that the Pledging and REPOS Report be submitted annually only by domestic systemically important banks, and update Schedule 3 to include references to the “Real Estate Asset Concentration” and “Asset Encumbrance Measure.”

Objectives

The main objective of the Amending By-law is to address the technical issues noted above.

Description

The changes are reflected in the 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]

8.1(1)

To remove date-specific information, which is no longer required.

 

8.1(2)

To remove date-specific information, which is no longer required.

 

8.1(3)

To remove date-specific information, which is no longer required. Additionally, to remove redundant information at the bottom of the subsection.

[2]

15(1)(e)(vi)

To repeal subparagraph 15(1)(e)(vi), as the Pledging and REPOS Report is not required from members not designated as domestic systemically important banks (D-SIB).

 

15(1.1)

To create the distinction between what is required from domestic systemically important banks and other members. This section provides that D-SIB members must provide the Pledging and REPOS Report in addition to the documents set out in subsection 15(1).

[3]

26(b)

To change a reference to item 10 of Schedule 3 to account for its change to item 12.

Schedule 1, Premium Categories

[4]

Schedule 1

To remove the percentage set out in column 3 for the premium year beginning in 2017, as the premium year is complete.

Schedule 2, Part 2, Reporting Form

[5]

Item 2

To clarify the nature of the information required by the CDIC from the member institution in the reporting form, and to remove a duplicated instruction.

[6]

Item 5

To clarify the scoring methodology.

[7]

Item 6, Table 6B

To remove incorrect information found in the title of Table 6B.

[8]

Item 7

To replace the "Elements" section in item 7 with a reformatted and clarified version.

Schedule 3, Part 2, Scoring Grid

[9]

Item 7

To reflect the update to the scoring methodology for item 5 of Schedule 2.

 

Item 10

To complete Schedule 3, the scoring grids of items 8 and 8.1 of Schedule 2 are added to Part 2 of Schedule 3.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs to small business.

Alternatives

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

Consultation

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

Rationale

The proposed Amending By-law will ensure the By-law remains technically up to date, and would achieve each of the stated objectives, directly addressed in the identified issues. The Amending By-law would not impose any additional regulatory costs or administrative burden on industry.

Compliance and enforcement

The proposed by-law would come into effect the 2018 premium year. There are no compliance or enforcement issues.

Contact

Noah Arshinoff
Manager
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613-995-6548
Email: narshinoff@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 Noah Arshinoff, Manager, Insurance, Canada Deposit Insurance Corporation, 50 O’Connor Street, Ottawa, Ontario K1P 6L2 (email: narshinoff@cdic.ca).

Ottawa, September 27, 2017

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 (1) The portion of subsection 8.1(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) before paragraph (a) is replaced by the following:

8.1 (1) A member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of the preceding premium year shall

(2) The portion of subsection 8.1(2) of the By-law before paragraph (a) is replaced by the following:

(2) A member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the two preceding premium years shall

(3) Subsection 8.1(3) of the By-law is replaced by the following:

(3) A member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the three preceding premium years shall be classified in premium category 4.

2 (1) Paragraph 15(1)(e) of the By-law is amended by adding “and” at the end of subparagraph (iv) and by repealing subparagraph (vi).

(2) Section 15 of the By-law is amended by adding the following after subsection (1):

(1.1) Every member institution that is a domestic systemically important bank shall submit to the Corporation, not later than April 30 of every year, the Pledging and REPOS Report, completed in accordance with the Reporting Manual as of the end of its preceding fiscal year.

3 Paragraph 26(b) of the By-law is replaced by the following:

  • (b) if the result of the threshold formula in item 8 of the Reporting Form is equal to or less than 90%, the Corporation shall compare the results obtained for the member institution in respect of that factor with the range of results set out for that factor in column 2 of item 12 of Part 2 of Schedule 3 and shall assign to the institution the score set out in column 3 of that item that corresponds to that institution’s results, respectively.

4 The subcolumn entitled “Premium Year Beginning in 2017” in Column 3 of Schedule 1 to the By-law is repealed.

5 The portion of item 2 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “2.2 Adjusted Tier 1 Capital Risk-Weighted Assets as of the End of the Preceding Filing Year” is replaced by the following:

Indicate the adjusted Tier 1 Capital risk-weighted assets as of the end of the fiscal year ending in the year preceding the filing year.

6 The first element under the heading “Range of results” in item 5 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Efficiency ratio (5) is ≥ 0% and ≤ 65%

7 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” in parentheses 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 40 - Derivative Contracts of the BCAR form and to the Capital Adequacy Requirements Guideline of the Guidelines.)

8 (1) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law beginning with the heading “Elements” and ending before item 7.4.1 is replaced by the following:

Elements

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

Assets for Years 1 to 4:

Assets for Year 1

Assets for Year 1 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the third filing year before the filing year in which this Reporting Form is being submitted.

Year 1:

 

7.1 ___________________

Assets for Year 2

Assets for Year 2 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the second filing year before the filing year in which this Reporting Form is being submitted.

Year 2:

 

7.2 ___________________

Assets for Year 3

Assets for Year 3 is the amount that the member institution entered as element 7.4 of the formula in the Reporting Form submitted by the member institution in the filing year before the filing year in which this Reporting Form is being submitted.

Year 3:

 

7.3 ___________________

Assets for Year 4

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, and to the Basel III Capital Adequacy Reporting – Credit, Market and Operational Risk (BCAR) form, Reporting Manual, completed in accordance with that Manual as of the end of the fiscal year ending in the year preceding the filing year.

Assets for Year 4 is the amount that the member institution determines by adding the following:

  • (a) the total of the amounts set out in the column "Total" for Securitized Assets – Unrecognized – Institution’s own assets (bank originated or purchased) – Traditional securitizations of Section I – Memo Items of the Consolidated Monthly Balance Sheet,
  • (b) 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 after the heading "7 THREE-YEAR MOVING AVERAGE ASSET GROWTH (%)", for years 1, 2 and 3, if the value of those assets on the date of their acquisition exceeds 15% of the value of the consolidated assets of the member institution immediately before that merger or acquisition, and
  • (c) the amount determined by using the formula 7.4.1 + 7.4.2 + 7.4.3 + 7.4.4 + 7.4.5 + 7.4.6 + 7.4.7 + 7.4.8 – 7.4.9 – 7.4.10 + (7.4.11 – 7.4.12) – 7.4.13 – 7.4.14 + 7.4.15 + 7.4.16 + 7.4.17 + 7.4.18 + 7.4.19 + 7.4.20 + 7.4.21 + 7.4.22 – 7.4.23 – 7.4.24 – 7.4.25 – 7.4.26.

(2) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law beginning with item 7.4.25 and ending before the heading “Score” is replaced by the following:

7.4.25 Adjustments – measurement bases

Indicate the Adjustments to reflect differences in balance sheet exposure amounts resulting from measurement bases used for accounting purposes (fair values) as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form.

7.4.26 Adjustments – recognition bases

Indicate the Adjustments to reflect differences in balance sheet exposure amounts resulting from recognition bases used for accounting purposes (settlement / trade date), as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form.

Year 4:

 

7.4 ___________________

Indicate the number of fiscal years consisting of at least 12 months that the member institution has been operating as a member institution (if less than six fiscal years).

A member institution must report assets for the last four fiscal years.

If a member institution has been operating as a member institution for less than four fiscal years consisting of at least 12 months each, it must indicate "N/A" ("not applicable") for the elements corresponding to the fiscal years for which it was not operating as a member institution.

9 (1) The portion of item 7 of Part 2 of Schedule 3 to the By-law in column 2 is replaced by the following:

Item

Column 2

Range of Results

7

≥ 0% and ≤ 65%

 

> 65% and ≤ 85%

 

< 0% or > 85%

(2) Item 10 of Part 2 of Schedule 3 to the By-law is replaced by the following:

Item

Column 1

Factors or Criteria

Column 2

Range of Results

Column 3

Score

10

Real Estate Asset Concentration (see note 1)

Threshold formula result is ≤ 10%

5

   

All scores in Column E of Table 8 of item 8 of the Reporting Form set out in Part 2 of Schedule 2 are 5

5

   

Lowest score in Column E of Table 8 of item 8 of the Reporting Form set out in Part 2 of Schedule 2 is 3

3

   

Lowest score in Column E of Table 8 of item 8 of the Reporting Form set out in Part 2 of Schedule 2 is 0

0

11

Asset Encumbrance Measure (see note 2)

8-1.1 ≤ 100%

5

8-1.2 < 50%

3

8-1.2 > 50%

0

12

Aggregate Commercial Loan Concentration Ratio

Result of Threshold formula in item 8 of the Reporting Form set out in Part 2 of Schedule 2 is > 90%

5

< 100%

5

≥ 100% and < 300%

3

≥ 300%

0

Note 1: The Real Estate Asset Concentration Score applies to member institutions other than domestic systemically important banks.

Note 2: The Asset Encumbrance Measure Score applies to member institutions that are domestic systemically important banks.

Coming into Force

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

[40-1-o]