On March 26, 2013, the Office of the Superintendent of Financial
Institutions ("OSFI"), the Canadian bank
regulator, issued an Advisory in which it identified the banks
considered to be systematically important for Canada in accordance
with the framework set out by the Basel Committee on Banking
Supervision. These banks are the Bank of Montreal, the Bank of Nova
Scotia, the Canadian Imperial Bank of Commerce, the National Bank
of Canada, the Royal Bank of Canada and the Toronto-Dominion
In October 2012, the Basel Committee published a document
setting out certain principles for Member States of the Bank for
International Settlements to help them address the impact that the
distress or failure of certain banks can have on domestic financial
systems and national economies.
Following this designation as domestic systematically important
banks, the above-mentioned banks will need to comply with stricter
financial standards in order to expand their capacity to absorb
unexpected losses. They will thus have to establish a risk-weighted
capital ratio requirement equaling a 1 per cent common equity
surcharge. OSFI also reserves the right to periodically revise this
capital surcharge in light of domestic and international
Thus, as of January 1, 2016, the designated banks will be
required to meet a risk-weighted all-in Pillar 1 target common
equity Tier 1 of 8% compared to a 7% requirement for smaller
In its Advisory, OSFI clarifies how such additional loss
absorbency, which is required from designated banks, matches well
with the capital targets established by the OSFI 2013 Capital
Adequacy Requirements Guideline and the Internal Capital
Adequacy Assessment Process Guideline. The OSFI Advisory also
discusses the supervisory and disclosure implications for banks
designated systematically important for Canada.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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