The Office of the Superintendent of Financial Institutions (OSFI) has issued an updated Capital Adequacy Requirements Guideline to help implement Basel III capital rules in Canada.

This guideline governs capital rules for banks, trust and loan companies and cooperative retail associations operating in Canada, and describes OSFI’s expectations of institutions in meeting those goals.

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“The issuing of this guideline is a significant milestone in meeting international commitments to improving global capital standards as set out in Basel III,” says Mark Zelmer, assistant superintendent, regulation sector.

“Canadian banks are well positioned to meet the 2019 Basel common equity capital requirements at the beginning of 2013. This is six years ahead of schedule and speaks to their prudence and resilience.”

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The updated guideline includes “two methodologies for determining capital and risk weighted assets…The first is referred to as “transitional”, and is defined as capital calculated according to the current year’s phase-in of supervisory adjustments and phase-out of non-qualifying capital instruments.”

The guide adds, “The second methodology is referred to as “all-in”, and is defined as capital calculated to include all of the regulatory adjustments that will be required by 2019, but retaining the phase-out rules for non-qualifying capital instruments.”

The document also discusses issues like how institutions are expected to approach credit risks, operational risks and market risks, as well as how the OFSI calculates minimum capital requirements.

OSFI issued a draft guideline in August for public consultation and the revised guidance incorporates many of the comments received. These are included in Annex 2 of the cover letter.

Although the Basel agreement allows for a lengthy phase-in period, OSFI’s supervisory expectations are being accelerated due to the relatively strong position of Canadian banks and the benefits associated with early adoption.