It has come to OSFI's attention that preferred shares with dividends that are fixed for a period of time and then shift to a floating rate may contain embedded step-ups. The guidance note reiterates OSFI's position concerning the use of step-ups in tier 1 preferred shares and clarifies our position regarding the methodology to be used in determining the existence of a step-up. Further, it clarifies OSFI's policy regarding the inclusion of instruments with a step-up in tier 2B capital. This guidance note applies to all banks, federally regulated trust and loan companies, and federally regulated life insurance companies. The guidance is effective immediately.

Questions concerning the guidance note should be addressed to Mr. Silvano Tittonel, Capital Division, at (613) 990-6429 or by facsimile at (613) 998-8466.

The guidance note is available in English and French on OSFI's Internet web site (http://www.osfi-bsif.gc.ca) under the Publications section. It may also be obtained by contacting Mr. Stéphane Dupel, General Services Division, by e-mail at extcomm@osfi-bsif.gc.ca or by facsimile at (613) 952-8219.