Vol. 137, No. 52 — December 27, 2003

By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law

Statutory Authority

Canada Deposit Insurance Corporation Act

Sponsoring Agency

Canada Deposit Insurance Corporation

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The Board of Directors of the Canada Deposit Insurance Corporation ("CDIC") made the Differential Premiums By-law (the "By-law") on March 3, 1999, pursuant to subsection 21(2) and paragraph 11(2)(g) of the Canada Deposit Insurance Corporation Act ("CDIC Act"). Subsection 21(2) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws establishing a system of classifying member institutions into different categories, setting out the criteria or factors CDIC will consider in classifying members into categories, establishing the procedures CDIC will follow in classifying members, and fixing the amount of, or providing a manner of determining the amount of, the annual premium applicable to each category.

CDIC annually reviews this By-law to ensure that it remains up-to-date. The reviews have resulted in the CDIC Board of Directors amending the By-law on January 12, 2000, December 6, 2000, July 26, 2001, and March 7, 2002.

Pursuant to section 28 of the By-law, CDIC assigns to each member institution a score that corresponds to a rating assigned by the member institution's examiner.

At the time of the development of the By-law, most examiners were using a CAMEL (or Capital, Asset Quality, Management, Earnings, and Liquidity) rating system that rated institutions from one (the best) to five (the worst). CDIC therefore used the same scale in the By-law and assigned a score for each of the five possible ratings. Currently, the differential premiums system translates the five possible examiner ratings as follows:

Most examiners, including the Office of the Superintendent of Financial Institutions (OSFI), the examiner of 97 percent of CDIC member institutions, have now moved to a risk-rating system. For example, OSFI has adopted a four-category rating scale in which it assigns institutions a composite risk rating (CRR). The four possible ratings an institution can be assigned, from best to worst, are: Low Risk, Moderate Risk, Above Average Risk and High Risk. As a result, the By-law is no longer aligned with the risk-rating systems used by examiners.

Therefore, CDIC is required to amend section 28 of the By-law to replace the five-point examiner rating with a four-point scale. While the total number of marks assigned to the examiner's rating under the By-law will not change, the amending By-law proposes to reallocate the 25 available marks among the four categories as follows:

This effectively combines the examiner's ratings of four and five into the new High Risk rating. CDIC is satisfied that this distribution does not significantly modify the distribution of member institutions across premium categories yet maintains an incentive to achieve a better rating.

Alternatives

There are no available alternatives. The CDIC Act specifically provides that the criteria or factors to be taken into account in determining the category in which a member institution is classified and in fixing or determining the amount of the annual premium applicable to each category may only be made by by-law.

Benefits and Costs

The implementation of the amending By-law will ensure that the rating assigned by each member institution's examiner for differential premium purposes is aligned with the risk rating assigned by the examiners. No costs, other than the potential impact on member institution classification and ultimately on the level of premiums paid as a result of the classification, should be attributed directly to these changes.

Consultation

CDIC consulted with its member institutions in respect of the proposed amendments in October 2003 and requested that member institutions submit comments in relation thereto on or before November 15, 2003. No issue was taken with the proposed changes.

Compliance and Enforcement

There are no compliance or enforcement issues.

Contact

Sandra Chisholm, Director, Standards and Insurance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5, (613) 943-1976 (Telephone), (613) 992- 8219 (Facsimile), schisholm@cdic.ca (Electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(g) (see footnote a)  and section 21 (see footnote b)  of the Canada Deposit Insurance Corporation Act, proposes to make the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

Interested persons may make representations concerning the proposed By-law within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Sandra Chisholm, Director of Standards and Insurance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5.

Persons making representations should identify any of those representations the disclosure of which should be refused under the Access to Information Act, in particular under sections 19 and 20 of that the Act, and should indicate the reasons why and the period during which the representations should not be disclosed. They should also identify any representations for which there is consent to disclosure for the purposes of that Act.

Ottawa, December 16, 2003

J. P. SABOURIN
President and Chief Executive Officer

BY-LAW AMENDING THE CANADA DEPOSIT INSURANCE CORPORATION DIFFERENTIAL PREMIUMS BY-LAW

AMENDMENTS

1. Subsection 28(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1)  is replaced by the following:

28. (1) For the purposes of this section, "examiner's rating" in respect of a member institution means the rating on a scale of one to four that is assigned to the institution by the examiner in the course of carrying out the examiner's duties.

2. Schedule 4 of the By-law is replaced by the following:

SCHEDULE 4
(Section 28)

EXAMINER'S RATING

COMING INTO FORCE

3. This By-law comes into force on the day on which it is registered.

[52-1-o]

Footnote a 

R.S., c. 18 (3rd Supp.), s. 51

Footnote b 

S.C. 1996, c. 6, s. 27

Footnote 1 

SOR/99-120

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with hypertext language (HTML). Its content is very similar except for the footnotes, the symbols and the tables.

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