(March 20 – 14:00 ET) – The Office of the Superintendent of Financial Institutions is worried that some banks may not be measuring risk properly.

In a letter to all federally-regulated financial institutions from Michael Hafeman, assistant Superintendent, Specialist Support Sector at OSFI, says, “Recent reviews of credit risk management practices have shown that institutions are using differing interpretations of common risk when aggregating exposures for the purpose of assessing compliance with the regulatory guidelines.”

This finding has sparked some concern at OSFI, which notes, “We are concerned that some federally regulated financial institutions may not be applying a suitably comprehensive interpretation and assessment of common risk. OSFI expects that, at regular intervals, each financial institution will conduct robust analyses of its loan portfolio and other credit exposures to determine the impact on its credit risk profile of changes in market conditions and its own business activities.”

OFSI has prepared a guidance note to further clarify the application of credit risk management practices. This guidance note comes into effect immediately. Along with outlining proper risk assessment considerations, it also reminds the financial institutions that it expects each institution’s board to oversee this process and to determine reporting requirements.