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Notice

Vol. 139, No. 51 — December 17, 2005

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

(This statement is not part of the By-law.)

Description

The Board of Directors of the Canada Deposit Insurance Corporation ("CDIC") made the Canada Deposit Insurance Corporation Differential Premiums By-law ("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. The CDIC Board of Directors has amended the By-law on January 12 and December 6, 2000, July 26, 2001, March 7, 2002, March 3, 2004, and February 9 and April 15, 2005.

The April 15, 2005 amendment to the By-law was a consequential amendment as a result of the repeal of the Canada Deposit Insurance Corporation Standards of Sound Business and Financial Practices By-law ("CDIC Standards"). In the Bylaw, one of the factors taken into account in assessing 10 of the 100 marks of the differential premiums scoring system was the extent of adherence to CDIC Standards. The April 15, 2005 amendment introduced a replacement qualitative measure on an interim basis such that member institutions in good standing with CDIC would be awarded the full 10 marks. This interim measure needs to be replaced. CDIC proposes to add the 10 marks to the existing examiner rating factor as the subject matter covered by the CDIC Standards is now addressed in the examiner rating. This increases the total score assigned to the qualitative examiner rating factor from 25 marks to 35 marks, maintaining the overall balance between quantitative and qualitative elements within the system.

Further, CDIC annually reviews this By-law to ensure that it remains up to date. There are, therefore, some technical or clarifying amendments that need to be made.

The changes result in the amendments contained in the proposed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law ("Amending By-law"). The significant amendments are to sections 28, 29 and Schedule 4. Consequential to the repeal of section 29, sections 9 and 11 require amendment. Technical or clarifying amendments are being made to section 1 and items 2, 5, 7 and 8 of the Schedule 2, Part 2 Reporting Form.

The changes are summarized in the following table:

Section of Amending By-law	Section of By-law Changed	Explanation
Substantive By-law
1	1(6)	Technical — Repeals subsection 1(6) — With the repeal of the Standards, a definition of deficiencies in following the Standards is no longer needed.
2	9	Consequential — Since section 29 of the By-law is being repealed, reference to section 29 is removed.
3	11(3)	Consequential — Since section 29 of the By-law is being repealed, paragraph 11(3)(b), that references section 29, is no longer needed.
4(1)	28(1)	Substantial — Changes the examiner rating factor from a rating on a scale of one to four to a rating on a scale of one to five. As a result of the additional marks allocated to the examiner rating, additional possible ratings were considered necessary.
4(2)	28(3)	Consequential — Since section 29 of the By-law is being repealed, and the marks allocated to the examiner rating are being increased from 25 to 35, the formula needs to be amended and the description of A in subsection 28(3) needs amendment to remove reference to section 29.
5	29	Substantial — Since the ten marks are being added to the examiner rating factor, there is no longer a need to define a member in good standing, thus section 29 is being repealed.
Schedule 2, Part 2 Reporting Form
6	Item 2	Technical — The number of the item in the Consolidated Statement of Income that reports net income or loss changed from 34 to 35.
7	Item 5	Technical — The change is made to the non-interest expenses to be used in the calculation of the efficiency ratio as a result of the elimination of amortization of goodwill. Only charges for impairment set out in items 26(l)(i) and (ii) may be deducted.
8	Item 7	Technical — Corrects the reference to a column on the Consolidated Monthly Balance Sheet that should have read "Total" and not "Total Assets."
9	Item 8	Technical — The reference to foreclosed properties was moved from the Mortgage Loans Report to a memo item in Section I of the Consolidated Monthly Balance Sheet.
Schedule 4, (section 28) Examiner's Rating
10	Schedule 4	Substantial — In light of the additional weighting allocated to the examiner rating within the system, it has been determined in discussions with the Office of the Superintendent of Financial Institutions (OSFI)—examiner of 99% of CDIC member institutions—that a five-prong examiner rating scale would be more appropriate as it does not unduly penalize some member institutions.
General
11	Effective	Amending By-law is effective on the date registered.

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 fixing or establishing the method of 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 put in place a reasonable allocation of the marks previously assigned to Standards adherence and ensure that the By-law remains up to date. No additional 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 Amending By-law by way of a consultation paper in September 2005. The paper provided members and other stakeholders with an opportunity to comment on various options to reallocate the ten marks by September 30, 2005. The options included adding the ten marks to the examiner rating factor, allocating the marks to a new quantitative measure or a combination of the two. The comments generally reflected that the options suggested were reasonable. On balance, the comments supported increasing the marks allocated to the examiner rating primarily since the subject matter covered by the Standards was being captured within the examiner rating. It was also suggested that, if the marks were allocated to the examiner rating, the rating scale be expanded and attention be directed to the gradation of the scores assigned to the ratings.

Further consultation took place in November 2005 wherein CDIC confirmed it would proceed with allocation of the marks to the examiner rating and explaining backtesting that took place to arrive at the gradation reflected in the proposed Amending By-law. Comments received supported the five-prong gradation, with a minor change in mark distribution that is now reflected in the Amending By-law.

Compliance and enforcement

There are no compliance or enforcement issues.

Contact

Sandra Chisholm, Director, Insurance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5, (613) 943-1976 (telephone), (613) 992-8219 (fax), schisholm@cdic.ca (email).

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 subsection 21(2) (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, 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 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 8, 2005

GUY L. SAINT-PIERRE
President and Chief Executive Officer
Canada Deposit Insurance Corporation

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

AMENDMENTS

1. Subsection 1(6) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) is repealed.

2. Section 9 of the By-law is replaced by the following:

9. In order to determine the total score of a member institution, other than a member institution referred to in section 10 or subsection 11(1), the Corporation shall add together the institution's scores for quantitative factors assigned under sections 20 to 27 and qualitative factors and criteria assigned under sections 28 and 30.

3. Subsection 11(3) of the By-law is amended by adding the word "and" at the end of paragraph (a) and by repealing paragraph (b).

4. (1) Subsection 28(1) of the By-law is amended by replacing the formula and the portion after the formula with 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 five that is assigned to the institution by the examiner in the course of carrying out the examiner's duties.

(2) Subsection 28(3) of the By-law is amended by replacing the formula and the portion after the formula with the following:

(A ÷ 65) × 35

where

A is the sum of the scores assigned to the member institution under sections 21 to 27 and 30.

5. Section 29 of the By-law and the heading before it are repealed.

6. Element 2.1 of item 2 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

2.1 Net Income or Loss

The net income or loss (the latter to be reported as a negative number) is the amount set out in item 35 of the Consolidated Statement of Income.

7. Element 5.1 of item 5 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

5.1 Total Non-Interest Expenses

Indicate the total non-interest expenses, as set out for item 27 of the Consolidated Statement of Income, less any charges for impairment included under items 26(l)(i) and (ii) of that Statement.

8. Paragraph (a) under the heading "Assets for Years 1 to 4" in item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the English version of the By-law is replaced by the following:

(a) the amount set out at the Total Assets line in the column "Total" of Section I of the Consolidated Monthly Balance Sheet;

9. Paragraph (a) under the heading "Real Estate Under Power of Sale or Foreclosed Properties" in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

(a) for foreclosed properties located in Canada the amount set out in the column "Total" for item 5(a)(iii)a) (Real estate) of Section I—Memo Items of the Consolidated Monthly Balance Sheet less the amount set out for that item in the column "Foreign Currency"; and

10. Schedule 4 to the By-law is replaced by the Schedule 4 set out in the schedule to this By-law.

COMING INTO FORCE

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

SCHEDULE
(Section 10)

SCHEDULE 4
(Section 28)

EXAMINER'S RATING

Item	Column 1 Examiner's Rating	Column 2 Score
1.	1	35
2.	2	31
3.	3	21
4.	4	11
5.	5	0

[51-1-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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