The Office of the Superintendent of Financial Institutions has published final versions of its capital adequacy guidelines ahead of Basel II taking effect November 1.

OSFI is reissuing certain guidelines that were published towards the end of last year, incorporating comments it received from industry associations and individual banks, and to correct errors that were identified in the December 2006 versions.

Major changes since then, include: a revised definition of substantial investments for regulatory capital purposes; and, explicit guidance for the treatment of residential mortgages guaranteed by a mortgage insurer having a government backstop guarantee.

Additionally, a new guideline is being published containing the transitional period capital floor on risk-weighted assets for institutions using the internal ratings based approach to credit risk. For institutions that have received approval to use the IRB approach, the capital floor requirement will be in effect for eight fiscal quarters following the implementation of the Basel II Framework in Canada.

Following a review of the minimum risk-based capital requirement during 2009, it will be determined whether floors will continue to be required for IRB applicants that were approved prior to January 1, 2010, as well as whether alternate transitional arrangements are required for IRB applicants that are approved after January 1, 2010.