August 16, 1999

To: CEOs of All Banks

Subject: Supervisory Methodology

Enclosed is a copy of OSFI's revised Supervisory Framework. The Framework provides an outline of our revised supervisory methodology.

A cornerstone of the revised methodology is an evaluation of inherent risks associated with an institution's significant activities and the quality of its risk mitigation for those activities. This assessment allows us to use the work of an institution's internal management and control functions to focus OSFI's resources on activities that are likely to materially affect the risk profile of an institution.

High-risk areas will be subjected to in-depth reviews periodically with an appropriate level of technical expertise. We are strengthening our expertise through the Specialist Support Sector as well as the Supervision Sector. We believe this risk-focused approach will make the supervisory process more cost effective and value added for institutions.

We have started to implement this methodology. It will be fine-tuned based on experience and input from the industry. We plan to meet with industry associations to discuss the revised methodology and therefore ask that you provide any comments or suggestions you might have to your association by October 15, 1999 at:

Canadian Bankers Association,
P. O. Box 348, Commerce Court Postal Station,
Toronto, Ontario M5L 1G2

Attention: Mark Weseluck, Vice President - Banking Operations

If you wish to submit comments directly to OSFI, please forward them to Naren Sheth, Director, Regulatory and Supervisory Practices Division at:

Office of the Superintendent of Financial Institutions,
Regulatory and Supervisory Practices Division
P.O. Box 39,
121 King Street West, 22nd Floor,
Toronto, Ontario M5H 3T9

The Supervisory Framework is available in the Publications section of the OSFI Internet Site (www.osfi-bsif.gc.ca).

Sincerely,

Nicholas Le Pan
Deputy Superintendent,
Supervision

Naren Sheth
Director,
Regulatory and Supervisory Practices