OSFI Rule Changes Reflect Observations Made During ABCP Disruption

OTTAWA, ONTARIO, Jun 19 (MARKET WIRE) --
The Office of the Superintendent of Financial Institutions (OSFI) is
seeking comments on a draft advisory on the capital treatment of
securitization exposures for Canadian Federally Regulated Entities (FREs).

"This draft advisory takes into account some observations made during the
recent turmoil in Canadian and international securitization markets,"
said Superintendent Julie Dickson.

The advisory includes an increase in the capital charges for general
market disruption (GMD) liquidity facilities. Ms. Dickson noted that
during the disruption, Canadian banks backed their own Asset-Backed
Commercial Paper (ABCP) conduits even when not legally required to do so.
"This action demonstrated that, despite legal and expert opinions to the
contrary, the risk was not in-fact fully transferred, and established the
need for a capital charge which more appropriately reflects the risk
taken on by the institutions."

The increase in capital charges also reflects pending changes to
international capital rules. "Globally, there is agreement among
international banking regulators towards strengthening the capital
treatment of liquidity facilities extended to support off balance sheet
vehicles such as ABCP conduits", said Ms. Dickson.

Ms. Dickson pointed to Canada's strong capital requirements as having
provided "a cushion for unexpected losses, and it helps to explain the
resilience of the Canadian banking system during the global financial
market turmoil."

Among the key areas where existing guidance is being reinforced or
changed:

- The zero percent credit conversion factor for GMD liquidity facilities
is eliminated, and will be subject to the same capital treatment as
global style liquidity facilities. This better reflects the actual risk
assumed by FREs, and is in line with pending changes to international
capital rules.

- Clarification of the sponsorship roles that FREs play with respect to a
securitization vehicle. This includes ongoing disclosure regarding
vehicle sponsorship, and an assessment of the impact of those sponsorship
roles on potential reputational risk.

- Effective September 15, 2008, two external credit ratings will be
required to apply ratings-related risk weights to most securitization
exposures. The advisory reminds FREs that external credit ratings are
only one indication of the quality of the exposures, and should not be
the sole factor in investment decisions.

"While OSFI's advisory applies to federally regulated Canadian
institutions and their role in securitization vehicles, our guidance does
not apply to other market participants," added Ms. Dickson. "We believe
it is still important to study other aspects of the ABCP marketplace, and
OSFI fully supports those efforts and will continue to provide input into
the process."

The cover letter and draft advisory can be accessed here:
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=2420

Additional information on OSFI's role in the ABCP market can be accessed
here:
http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/media/ABCP_Backgrounder_e.pdf

Created in 1987 by an Act of Parliament, the Office of the Superintendent
of Financial Institutions (OSFI) is the primary regulator and supervisor
of federally registered deposit-taking institutions, insurance companies,
and federally registered private pension plans. OSFI's mandate is to
advance and administer a regulatory framework that contributes to public
confidence in a strong, stable and competitive financial system.

Contacts:
Office of the Superintendent of Financial Institutions
Rod Giles
Communications and Public Affairs
613-993-1678
Cell: 613-614-5954
rod.giles@osfi-bsif.gc.ca

Copyright 2008, Market Wire, All rights reserved.

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