The Office of the Superintendent of Financial Institutions (OSFI) is revising the capital floor requirements that were originally implemented in 2008 to establish minimum regulatory capital requirements for banks using internal models.
The revised requirements will begin to be phased in during the second quarter, OSFI says in a letter to federally regulated financial institutions published Friday.
The original requirements, which were based on Basel I capital standards, have become “increasingly impractical,” OSFI says in the letter, regulators are replacing those requirements with a revised mechanism that aims to create “a more robust, risk-sensitive output floor based on the Basel III standardized approaches.”
However, the new floor, based on Basel III, isn’t due to be implemented until 2022.
In the meantime, OSFI will implement a revised capital floor starting in the second quarter, which will be phased in over three quarters, using the standardized Basel II approach.
“This interim step will improve risk-sensitivity while ensuring the objectives of the capital floor continue to be met,” OSFI says.