Canada Gazette, Part I, Volume 158, Number 42: By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law

October 19, 2024

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.)

Issues

The Canada Deposit Insurance Corporation (CDIC) annually reviews the Canada Deposit Insurance Corporation Differential Premiums By-law (By-law) to confirm it is up to date and that the terminology referenced in the By-law aligns with the terminology that is used in regulatory filings requested by the Office of the Superintendent of Financial Institutions (OSFI). Such alignment will ensure that CDIC member institutions have clarity on the data filing requirements, and that CDIC receives the appropriate information from its member institutions. As a result, technical amendments are proposed in the By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (the Amending By-law). In addition, OSFI has also recently published the Small and Medium-Sized Deposit-Taking Institutions (SMSBs) Capital and Liquidity Requirements – Guideline (2023) reducing regulatory filing requirements for Category III SMSBs (which are financial institutions below a certain size). Amendments are proposed to ensure CDIC requirements align with this change. Lastly, amendments are proposed to increase the number of premium categories from four to five. This decision stems from analysis conducted as part of CDIC’s comprehensive review of the Differential Premiums System (DPS), which demonstrated that a five category system would provide for more meaningful differentiation of member institutions based on their relative risk levels and, therefore, allow for fairer premium allocation while maintaining meaningful incentivization for member institutions to achieve the best classification.

Background

The Board of Directors of the Canada Deposit Insurance Corporation (CDIC) made 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 member institutions 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, December 7, 2016, December 6, 2017, December 5, 2018, March 6, 2019, December 4, 2019, December 9, 2020, December 8, 2021, and December 6, 2023.

Objective

The Amending By-law would increase the number of premium categories from four to five categories and clarify the requirements that apply to Category III SMSBs to align with OSFI’s Small and Medium-Sized Deposit-Taking Institutions (SMSBs) Capital and Liquidity Requirements – Guideline (2023). In addition, some amendments to the By-law aim to ensure that the By-law is brought up to date with OSFI’s Basel Capital Adequacy Reporting (BCAR).

Description

Premium categories

To expand premium categories from four to five categories, amendments would be made to several provisions in the By-law that refer to four available premium categories. The amendments include requiring member institutions that fail to submit documents required under the By-law to be classified in premium category 5 instead of 4 for the duration that they are late in doing so, as well as adjustments to base the Canada Deposit Insurance Corporation Data and System Requirements By-law criterion on a range of five premium categories instead of four. Further, Schedule 1 of the By-law would be amended to set out premium rates and the range of total scores for each of the five premium categories as follows.

Table 1: Proposed premium categories
Item Premium category Total score Percentage table 1 note a Premium rate (basis points)
1 1 ≥ 90 22.5% 7.5
2 2 ≥ 80 and < 90 27% 9
3 3 ≥ 65 and < 80 40.5% 13.5
4 4 ≥ 50 and < 65 72.9% 24.3
5 5 < 50 100% 33.3

Table 1 note(s)

Table 1 note a

Premium rates for each category are expressed in the By-law as a percentage of the statutory maximum premium rate. The equivalent rate expressed in basis points is shown here for illustrative purposes although this column is not included in Schedule 1 of the By-law.

Return to table 1 note a referrer

A member institution’s premium rate is assigned based on the premium category they are classified into.footnote 1 An annual premium is calculated by multiplying the relevant percentage from the table in Schedule 1 of the By-law by the statutory maximum premium rate (i.e. 1/3 of 1%) and by the member institution’s total volume of insured deposits as of April 30 in the immediately preceding premium year.

Category III SMSBs

To align with changes made by OSFI in respect of the regulatory filing requirements for Category III SMSBs, amendments would be made to the By-law to clarify that a Category III SMSB is not required to submit certain financial information to CDIC. In addition, the amendments would clarify that Category III SMSBs receive a quantitative score out of a maximum of 45 points instead of the maximum 60 points for other member institutions. To assign a total quantitative score, a Category III SMSB’s score out of 45 points will be proportionally converted to a score of 60 points.

Technical amendments

The table below provides more detail about the proposed technical amendments in the Amending By-law.

Table 2: Proposed technical amendments
By-law section / schedule Remove Insert Explanation
Table 6A Undrawn commitments – excluding securitization exposure – Standardized Approach – Credit conversion factor b – 0%, 20%, 50% Undrawn commitments – excluding securitization exposure – Standardized Approach – Credit conversion factor b – 10%, 25%, 40% Numerical changes to align with updates to OSFI’s BCAR return.
Table 6B Exposure at Default (EAD) (after taking into account collateral and guarantees) Exposure at Default (EAD) (1.4 x (replacement cost + potential future credit exposure)) Changes in language to align with updates to OSFI’s BCAR return.
Measure 7. Assets for Year 4 (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. (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. The formula used in the By-law for the elements from 7.4.1 to 7.4.25 is correct. This is merely a change in the formula (removing 7.4.26, which is not defined in the By-law, as well as the movements of the figures in brackets).
Measure 8.2 The total non-mortgage loans is the sum of the amounts set out for "Total" in the columns "TC" under "Resident Loan Balances" and "Non-Resident Loan Balances" in the Non-Mortgage Loans Report. The total non-mortgage loans is the sum of the amounts set out for "Balance reported on M4" in the columns "TC" under "Resident Loan Balances" and "Non-Resident Loan Balances" in the Non-Mortgage Loans Report. Not a substantive change, merely a clarification in wording.
Schedule 3,
PART 2, Net Impaired Assets to Total Capital
  • < 20%, score 5
  • ≥ 20% and < 40%, score 3
  • ≥ 40%, score 0
  • ≥ 0% and < 20%, score 5
  • ≥ 20% and < 40%, score 3
  • ≥ 40% or <0%, score 0
 This numerical change provides clarity as to which numbers apply to those with a negative score.

Regulatory development

Consultation

With respect to the amendments that pertain to the increase to five categories, a formal consultation was conducted with stakeholders (i.e. CDIC’s member institutions) between July and October of 2022. Following the consultation, a summary of responses was shared with stakeholders, and changes to proposals were made based on feedback. Final framework changes were published on CDIC’s website in July 2023. Overall, respondents generally agreed that adding a fifth risk category would enable more differentiation of member institutions on the basis of risk and improve fairness through a reduction of cross subsidization.

As part of the consultations described above, materials were included that explained how SMSBs of all categories would be impacted under the new framework. There were no comments with respect to the need to align By-law requirements with differing prudential and regulatory requirements imposed on these SMSBs.

As the technical amendments do not affect the substantive elements of the By-law, the only consultation will be by way of prepublication in the Canada Gazette, Part I.

Instrument choice

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

Regulatory analysis

Benefits and costs

There are no benefits or costs for stakeholders that can be clearly monetized. There will be some benefits and costs for some member institutions in the form of increased or decreased premiums as a result of the five premium category framework.

Small business lens

Analysis under the small business lens determined that the proposal will not impact small businesses in Canada.

One-for-one rule

The one-for-one rule does not apply to these amendments, as there is no change in administrative costs or burden to business.

Regulatory cooperation and alignment

The Amending By-law is not related to a work plan or commitment under a formal regulatory cooperation forum.

Effects on the environment

No effects based on the environment have been identified for this proposal. The only economic effect would be that some member institutions will pay more premiums and some will pay less as a result of the five premium category framework.

Gender-based analysis plus

No impacts based on gender and other identity factors have been identified for this proposal.

Rationale

The Amending By-law will ensure the By-law remains technically up to date, and would achieve the stated objective, and addresses the identified issues.

Implementation, compliance and enforcement, and service standards

The Amending By-law would come into effect for the 2025 premium year (April 1, 2025). There are no compliance or enforcement issues.

Contact

Erica Lasker
Senior Legal Counsel
Legal Services
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Email: elasker@cdic.ca

PROPOSED REGULATORY TEXT

Notice is given that the Board of Directors of the Canada Deposit Insurance Corporation proposes to make the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law under subsection 21(2)footnote a of the Canada Deposit Insurance Corporation Act footnote b.

Interested persons may make representations concerning the proposed By-law within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Erica Lasker, Senior Legal Counsel, Legal Services, Canada Deposit Insurance Corporation, 50 O’Connor Street, 17th Floor, Ottawa, Ontario K1P 6L2 (email: elasker@cdic.ca).

Ottawa, October 7, 2024

Leah Anderson
President and Chief Executive Officer of the Canada Deposit Insurance Corporation

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

Amendments

1 Subsection 1(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law footnote 2 is amended by adding the following in alphabetical order:

Category III SMSB
means a member institution that is subject to the Category III requirements set out in the Small and Medium-Sized Deposit-Taking Institutions (SMSBs) Capital and Liquidity Requirements – Guideline, issued by the Superintendent, as amended from time to time. (PMB de catégorie III)

2 The description of D in subsection 4(2) of the By-law is replaced by the following:

D
is the amount that would be the result under paragraph (1)(b) if C in that paragraph represented the percentage set out in column 3 of item 5 of Schedule 1;

3 The portion of subsection 6(1) of the By-law before paragraph (a) is replaced by the following:

6 (1) The Corporation shall review the classification of every member institution that has been classified in premium category 5 in accordance with section 12 if the institution submits to the Corporation on or before April 30 of the year following the filing year

4 (1) Subsection 8.1(1) of the By-law is amended by striking out “and” at the end of paragraph (b) and by replacing paragraph (c) with the following:

(2) Paragraphs 8.1(2)(a) and (b) of the By-law are replaced by the following:

(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 or subparagraph 8.01(a)(i), that was not in all material respects compliant with the Data Requirements By-law as of April 30 of each of the three preceding premium years shall be classified in premium category 5.

(4) Subsection 8.1(4) of the By-law is amended by striking out “and” at the end of paragraph (b) and by replacing paragraph (c) with the following:

5 Section 9 of the By-law is replaced by the following:

9 In order to determine the total score of a member institution, other than a member institution referred to in section 10 or subsection 11(1), the Corporation shall add together the institution’s scores for quantitative factors assigned under sections 21 to 27 — or, in the case of a member institution that is a Category III SMSB, those scores multiplied by one and one-third — and its scores for qualitative factors and criteria assigned under sections 28 and 30.

6 (1) Paragraph 11(2)(a) of the By-law is replaced by the following:

(2) Subparagraphs 11(2)(b)(i) and (ii) of the By-law are replaced by the following:

7 The portion of subsection 12(1) of the By-law before paragraph (a) is replaced by the following:

12 (1) A member institution shall be classified in premium category 5 if it

8 Section 21 of the By-law is replaced by the following:

21 The Corporation shall assign to each member institution

9 Section 22 of the By-law is renumbered as subsection 22(1) and is amended by adding the following:

(2) Subsection (1) does not apply in respect of a member institution that is a Category III SMSB.

10 Schedule 1 to the By-law is replaced by the Schedule 1 set out in the schedule to this By-law.

11 Item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by adding the following before the paragraph that is after the heading “1 CAPITAL ADEQUACY MEASURES”:

A member institution that is a Category III SMSB is not required to complete elements 1.1 and 1.2.

12 Item 2 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by adding the following after the heading “2 RETURN ON RISK-WEIGHTED ASSETS (%)”:

A member institution that is a Category III SMSB is not required to complete item 2.

13 (1) Table 6A of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by replacing “0%/20%/50%” in the column under the heading “Credit conversion factor b” opposite “Undrawn commitments – excluding securitization exposure/Standardized Approach” with the following:
Impaired Instruments

Credit conversion factor

b
Undrawn commitments – excluding securitization exposure Standardized Approach 10%
25%
40%

(2) Table 6B of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by replacing “Exposure at Default (EAD) (after taking into account collateral and guarantees)” with “Exposure at Default (EAD) (1.4 × (replacement cost + potential future credit exposure))”.

14 Paragraph (c) under the heading “Assets for Year 4” in item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

15 The paragraph after the heading “8.2 Total Non-Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

The total non-mortgage loans is the sum of the amounts set out for “Balance reported on M4” in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” in the Non-Mortgage Loans Report.

16 The heading of column 1 of Part 1 of Schedule 3 to the By-law is replaced by “Leverage Ratio1”.

17 Part 1 of Schedule 3 to the By-law is amended by adding the following at the end of that Part:

1 The Leverage Ratio score does not apply to member institutions that are Category III SMSBs.

18 The portion of item 4 of Part 2 of Schedule 3 to the By-law in column 1 is replaced by the following:
Item

Column 1

Factors or Criteria
4 Return on Risk-Weighted Assets 1
19 The portion of item 8 of Part 2 of Schedule 3 to the By-law in column 2 is replaced by the following:
Item

Column 2

Range of Results
8
  • ≥ 0% and < 20%
  • ≥ 20% and < 40%
  • ≥ 40% or < 0%
20 The portion of items 10 and 11 of Part 2 of Schedule 3 to the By-law in column 1 is replaced by the following:
Item

Column 1

Factors or Criteria
10 Real Estate Asset Concentration2
11 Asset Encumbrance Measure3

21 Notes 1 and 2 of Part 2 of Schedule 3 to the By-law are replaced by the following:

1 The Return on Risk-Weighted Assets score does not apply to member institutions that are Category III SMSBs.

2 The Real Estate Asset Concentration score does not apply to member institutions that are domestic systemically important banks.

3 The Asset Encumbrance Measure score applies only to member institutions that are domestic systemically important banks.

Coming into Force

22 This By-law comes into force on April 1, 2025, but if it is registered after that day, it comes into force on the day on which it is registered.

SCHEDULE

(Section 10)

SCHEDULE 1

(Paragraphs 3(b) and 4(1)(b), subsections 4(1.1) and (2), section 8 and subparagraph 8.01(a)(ii))

Premium Categories
Item

Column 1

Premium Category

Column 2

Total Score

Column 3

Percentage

Premium Years Beginning in or After 2025
1 1 ≥ 90 22.5%
2 2 ≥ 80 and < 90 27%
3 3 ≥ 65 and < 80 40.5%
4 4 ≥ 50 and < 65 72.9%
5 5 < 50 100 %

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