Reference: Guideline for Banks, Guideline for Trust and Loan Companies
Our File: P2215-2
July 21, 1999
Subject: Guideline A, Capital Adequacy Requirements
In April OSFI wrote to the industry proposing changes to the capital treatment of investments in unconsolidated subsidiaries and intangible assets. We are now writing to outline the final rules for intangible assets.
Intangible assets in excess of 5% of gross tier 1 capital are to be deducted from tier 1 capital.
Deduction of intangible assets in excess of 5% of gross tier 1 capital as at June 30, 1999 will be phased in equally over 60 months (five years). For example, a deposit taking institution (DTI) with an October 31 year end and with intangible assets that exceed the 5% limit by $100 would deduct the following amounts from tier 1 capital:
Fiscal Year Amount
Deducted
ending in
1999 $7 (4 months)
2000 27
2001 47
2002 67
2003 87
2004 100
Intangible assets that exceed 5% of gross tier 1 capital are being deducted because of questions about:
The new rule addresses these concerns and brings Canadian rules more closely in line with capital rules in other jurisdictions.
The final rule for the treatment of investments in unconsolidated subsidiaries will require that these investments be deducted 50% from tier 1 capital and 50% from tier 2 capital. We are planning to put this rule into place but want to coordinate it with the treatment of investments in insurance subsidiaries. A proposal on how to determine the amount of the investment in insurance subsidiaries to be deducted from capital will be sent out shortly under separate cover. Revisions to the relevant pages of Guideline A,Capital Adequacy Requirements will be made once the treatment of insurance subsidiaries has been finalized.
Federally regulated deposit taking institutions should address any questions to the irrelationship managers. Others may contact Aina Liepins, Capital Division at (613) 998-5606 or by fax at (613) 998-8466.
John R. Thompson
Deputy Superintendent