Vol. 148, No. 5 — February 26, 2014

Registration

SOR/2014-29 February 11, 2014

CANADA DEPOSIT INSURANCE CORPORATION ACT

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

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), makes the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

Ottawa, December 4, 2013

The Minister of Finance, pursuant to subsection 21(3) (see footnote d) of the Canada Deposit Insurance Corporation Act (see footnote e), approves the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law, made by the Board of Directors of the Canada Deposit Insurance Corporation.

Ottawa, February 6, 2014

JAMES M. FLAHERTY
Minister of Finance

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of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) and the heading before it are repealed.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 note 2)

    
 

(see note 2)

    
 

(see note 2)

    

Impaired OTC Derivative Contracts

      

Credit derivative contracts

  

(see note 1)

  

Interest rate contracts

  

(see note 1)

  

Foreign exchange & gold contracts

  

(see note 1)

  

Equity-linked contracts

  

(see note 1)

  

Precious metals (other than gold) contracts

  

(see note 1)

  

Other commodity contracts

  

(see note 1)

  

Total

    

Use these totals to calculate element 6.2

(Note 1)
Fill in the total amounts of the contracts under the heading "Credit equivalent amount" from Table 6B.

(Note 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.

(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 - Offbalance 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

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 1 of Schedule 3 to the By-law is replaced by the following:

PART 1

CAPITAL ADEQUACY

Range of Results

Item

Column 1


Assets to Capital Multiple

Column 2

Tier 1 Risk-Based Capital Ratio

Column 3

Total Risk-Based Capital Ratio

Column 4


Score

1.

≤ the multiple authorized by the regulator

≥ 8.5%

>10.5%

20

2.

≤ the multiple authorized by the regulator

≥ 5.5% and < 8.5%

≥ 10.5%

13

3.

> the multiple authorized by the regulator

< 5.5%

< 10.5%

0

8. 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:

COMING INTO FORCE

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

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 CDIC will consider in classifying members into categories, establishing the procedures 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.

CDIC annually reviews this 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 the Schedule 2, Part 2, Reporting Form (Reporting Form) together with consequential amendments to Schedule 3, Part 1, 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

  • 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) re: 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) re: heading of Table 6A and Table 6B: Amended to include current title of Capital Adequacy Requirements (CAR) 2013 Guideline.
  • Subsection 3(3) re: Table 6A Column heading changed to read "Individual allowance for impairment" reflecting IFRS terminology change.
  • Subsections 3(4) and (5) re: 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 Internal Ratings-Based (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-references the applicable BCAR form line items for those years.

5

Referencing Item 8 — Real Estate Asset Concentration

  • Element 8.1 amended to exclude National Homeowners Association (NHA) mortgage-backed security (MBS) pooled and unsold as they are already accounted for in insured residential mortgage loans.

6

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

Schedule 3, Part 1, Capital Adequacy

7

Referencing the Range of Results — Capital Adequacy

  • Makes corresponding changes to those made by subsection 2(6) described above.

8

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).

9

The 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 were informed by letter of September 5, 2013, that prepublication was to take place in October 2013. As the changes are technical in nature, no consultation other than through prepublication is necessary. Prepublication took place in the October 19, 2013, edition of Part I of the Canada Gazette providing for a 30-day comment period. No comments were received.

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