Federal financial regulators are contemplating reforms to their fee model for banks and other federally regulated firms to take greater account of the risk that an institution poses to the financial system.
The Office of the Superintendent of Financial Institutions (OSFI) Tuesday published a consultation paper outlining the results of a review of its fee assessment methodology, and proposals for changes to the methodology. OSFI says that it aims to ensure that the distribution of its expenses through assessments “appropriately reflects the time and resources that OSFI devotes to supervising and regulating individual” firms.
Previously, OSFI viewed ‘average total assets’ to be the best unit of measure on which to base assessments, it says, because this generally reflects the size of a firm, and this was viewed as a sound proxy for the time and resources OSFI spent supervising individual firms. However, it notes that, “during the recent financial crisis, for example, OSFI found that the risk profile of a [firm] was also a significant driver of OSFI’s resources.”
Additionally, it says that any new methodology should consider the implications of post-crisis reforms, such as the greater level, extent, and intensity of supervision of domestic systemically important banks. Therefore, OSFI is proposing an assessment methodology that is aligned with its risk-based supervisory framework.
It has concluded that an assessment methodology “based on capital adequacy requirements and capital equivalency deposit, would permit the allocation of OSFI expenses in a manner that more closely reflects the actual time and resources spent regulating and supervising” individual firms, including systemically important banks.
This methodology also better reflects OSFI’s regulatory and supervisory practices and resource allocation decisions, it says; and, it would be less prone to major impacts resulting solely from future accounting changes, it says.
Finally, OSFI says that it believes that the proposed minimum assessment amounts, and subsequent annual indexing, would help minimum charges keep pace with growth in base assessments.
Comments on the proposed assessment methodology are due by November 29.