Canadian Banking Laws on Capital Requirements

It's only fair to share...Share on Facebook
Tweet about this on Twitter
Share on LinkedIn

Guidelines are requiring Canadian banks to have capital requirements that are in line or higher than the set Basel III minimums. The  (OSFI) is responsible for ensuring that all banks adhere to the Canadian banking laws as far as capital requirements are concerned. 

The Base III Capital capability requirements were implemented using the updated CAR Guideline. However, implementation is ongoing and more changes are expected in the next couple of years. There are six large Canadian banks and they are required to meet the common target equity tier ratio of seven percent or risk subjective assets. 

However, OSFI recognizes that increasing the surcharge too high would harm the Canadian economy. For this reason, they have subjected additional loss absorbency necessities based on a bank?s international systematic importance. There are six large banks in Canada and they account for about 90% of total banking properties.   

The guidelines on capital requirements have gone through a series of revisions with the most recent having taken place in October of the year 2018. Some of the major revisions include the implementation of a domestic standardized approach to credit risk counterparty, implementation of domestic capital requirement for exposed banks in central counterparties, domestic securitization implantation framework, clarification of the treatment of capital rights to assets, and changes in the capital floor. 

If a bank is not able to adhere to set minimum capital requirements, it could go into insolvency. Should a bank become insolvent, OSFI takes control of the bank. If the Attorney General Allows, the bank can be wound up under the winding-up and restricting act (WURA). The bank?s liquidator must be the Canada Deposit Insurance Corporation (CDIC) or a trustee that has been licensed under the Insolvency and Bankruptcy Act. 

Every business in Canada has a minimum capital requirement that it must fulfill if it is going to be legible for financial support in any Canadian banking institution under the Canadian banking laws. Failure to meet these minimum requirements exposes one’s business to higher interest rates should they manage to get a bank loan. The process of acquiring the loan is also more tedious and a lot more is required before the loan can be disbursed. The lending institution is also harder on such a business and they would incur heavy interests should they be late in making loan repayments or should they default on loan repayments. 

To improve the chances of getting affordable loans as stipulated under the Canadian banking laws, every business should ensure that it has all the capital as stipulated under the guidelines Cutting costs and looking for alternative means of growth capital is a good way to achieve this. 

Leave a Reply

Your email address will not be published.