OSFI seeks feedback on draft minimum capital test guideline

The Office of the Superintendent of Financial Institutions (OSFI) has released its draft revised Minimum Capital Test (MCT) Guideline and is asking for comment by April 7.The MCT guideline reflects the accounting and capital policy positions that will be communicated in the final IFRS Advisory and other changes related to the capital requirements for 2011 year-end. It outlines the capital framework, using a risk-based formula for minimum capital required and defines the capital that is available to meet the minimum standard. The MCT determines the minimum capital required, not the optimum capital required, OSFI said in its guideline.“OSFI believes that each institution should establish a target capital level that provides a cushion above minimum requirements, both to cope with volatility in markets and economic conditions, innovations in the industry, consolidation trends and international developments, and to provide for risks not explicitly addressed in the calculation of policy liabilities or the MCT,” the guideline said.Such risks include systems, data, strategic, management, fraud, legal and other operational and business risks.While OSFI expects each institution to maintain ongoing capital at no less than the supervisory target of 150% MCT, it may on a case-by-case basis establish an alternative supervisory target level based upon an individual institution’s risk profile, subject to consultation with the regulator. The revised MCT Guideline can be found at:http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3601