OSFI delays increase of Basel III output floor by one year
News release - Ottawa -
Today, the Office of the Superintendent of Financial Institutions (OSFI) announced a one-year delay to the increase of the capital floor level (or “output floor”). Canada concluded its implementation of Basel III 2017 reforms in early 2024 and established a three-year phase-in of the capital floor consistent with the timetable set by the Basel Committee on Banking Supervision (BCBS).
The purpose of the capital floor is to reduce excessive variability and to enhance comparability of risk-based capital ratios. The capital floor requires that risk-weighted-assets generated by internal model-based approaches cannot, in aggregate, fall below a percentage of the risk-weighted assets computed by the standardized approach.
OSFI’s implementation of the Basel III 2017 reforms, including the capital floor, reflects our conviction that these reforms provide a sound, prudential foundation for Canada’s banking system. Global implementation of the capital floor has been a lengthy process. The one-year delay will give OSFI time to consider the implementation timeline of the Basel III 2017 reforms in other jurisdictions.
On May 13, 2024, Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in full, consistently and as soon as possible.
Like its GHOS peers, OSFI remains committed to Basel III implementation and the sound prudential principles underlying these reforms. We are optimistic our regulatory peers will continue to work towards a full, timely and consistent adoption and implementation of the Basel III 2017 reforms.
Quote
The Basel III 2017 reforms will strengthen banks’ ability to withstand financial shocks and support economic growth while enabling them to compete and take reasonable risks. Key to these reforms’ success is full, timely, and consistent adoption and implementation across BCBS jurisdictions so that competitive balance prevails throughout the international banking system.
We will continue to measure implementation progress of the Basel III 2017 reforms across jurisdictions with a focus on both competitive balance in banking and the soundness of Canada’s capital regime.
Quick facts
- Basel III is a set of measures developed by the Basel Committee on Banking Supervision in response to the 2007-2008 global financial crisis and were internationally accepted in 2017.
- Basel III 2017 reforms help ensure Canadian banks effectively manage risks through adequate levels of capital and liquidity to help bolster resiliency.
- Canada’s progress against other participating jurisdictions is available at the BCBS website: RCAP on timeliness: Basel III implementation dashboard
- OSFI’s implementation of Basel III reflects three key principles: introducing rules that are fit for Canada, setting the right incentives, and tailoring capital and liquidity requirements to better reflect the unique nature of Canadian banks.
- The capital floor subjects banks using internal models to a floor on their required capital relative to the standardized approaches.
- OSFI’s decision is the product of an in-depth consultation with the affected institutions and with global regulatory peers.
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With the one-year delay, the transition of the capital floor will be:
Floor adjustment factor Fiscal year 2024 2025 2026 2027+ Current 67.5% 70.0% 72.5% 72.5% Revised 67.5% 67.5% 70.0% 72.5%