On June 26, 2004 the Basel Committee on Banking Supervision published, with the endorsement of the central bank governors of the G-10, a new capital adequacy framework commonly known as Basel II (new Basel framework). Since the issuance of the CP3 consultative document in April of 2003, OSFI has been working closely with industry and the Accord Implementation Group (AIG) regarding the implementation of the new Basel framework. These efforts have identified a number of issues where industry has suggested it would be most helpful to have views in order to assist implementation efforts. Consequently, we have developed the enclosed Consultative Paper.

The Consultative Paper sets out OSFI's proposed approach on a number of national discretion policy issues. It also clarifies key aspects of timing/reporting requirements and parallel-run periods for implementation for both credit and operational risk approaches. This paper contains our policy proposals for the following:

• Availability of approaches
• Timing of implementation and reporting periods
• Scope of application
• Standardized approach to credit risk
• Internal ratings based approach to credit risk
• Credit risk mitigation
• Banking book equity minimum requirements
• Operational risk minimum requirements
• Pillar 2

This paper does not address the interpretation of minimum technical requirements for the internal ratings based approach. OSFI plans to conduct a dialogue with industry working groups on these requirements. This Consultative Paper does not include OSFI's proposals for Pillar 3. We intend to engage the industry in the development of templates for disclosure standards that are tailored for Canadian circumstances in due course.

Institutions are invited to provide comments regarding the Consultative Paper by September 30, 2004 through their industry associations. Other interested parties are also invited to provide comments. Questions with respect to the Consultative Paper should be addressed to Mr. Richard Gresser by e-mail at richard.gresser@osfi-bsif.gc.ca, or by facsimile at (613) 991-6822.