Title: Proposed Legislative Changes CUMA September 18, 2006 Andy Poprawa, CEO Deposit Insurance Corporation of Ontario
1Proposed Legislative ChangesCUMASeptember
18, 2006 Andy Poprawa, CEODeposit Insurance
Corporation of Ontario
2PROCESS RESPONSIBILITIES
- Policy making and drafting is the responsibility
of the Ministry of Finance - FSCO and DICO are providing technical advice to
the Ministry as requested - Consultation draft issued on amendments to
current regulations under current Act - Consultation draft issued on revisions to the Act
3PURPOSE OF PROPOSALS
- Respond to changes in market place
- Address recommendations from Coalition
- Provide opportunities for growth
- Greater flexibility and autonomy for institutions
- Improve regulatory efficiency
- Provide for continuance of credit unions/caisses
to another jurisdiction or other entity
4MAJOR PROPOSED CHANGES
- More focus on by-laws as opposed to Act for
governance issues - Elimination of need for any committee except
Audit Committee (to be made up solely of
Directors) - Need to provide for director training in
by-laws/policies - Can raise additional member share capital without
need for offering statement up to 1,000 per
member - Bond of association rules simplified - to be
covered in by-laws - Employer sponsored RRSP recognized
- Membership rules relaxed for syndicated loans
- Pledging security limited to short term liquidity
needs (revised limits to be prescribed) unless
approved
5MAJOR CHANGES - LENDING
- Improved lending regime
- Limits based on capital
- Limits now exclude insured portion of loans
- Removal of lending license regime
- Collateral mortgages gt75 LTV allowed
- Two classes of MIs
- Class 1
- Under 50 million in assets
- No commercial lending other than existing limit
of 25,000 loans for commercial purpose secured
by residential mortgage loans are exempt - Class 2
- All others
- Or where approved to be Class 2
6MAJOR CHANGES CLASS 1
- Simple rules for Class 1
- Similar to existing rules for Capital, Liquidity
and Investments - Increased lending limits based on capital
(revised table in Regulations) - Fully secured and under-secured personal loan
limits (add under-secured to secured limit) - No BIS II capital test
- 5 minimum leverage capital test retained
(including general loan loss allowance)
7Revised Aggregate Lending Limits Class 1
Asset Size Proposed lending limit for a person or entity and connected persons Current Limit for a person or entity and connected persons Minimum Increase
Less than 500,000 Greater of 100 of regulatory capital or 60,000 33,000 27,000
500,000 to 1 million Greater of 100 of regulatory capital or 100,000 64,000 36,000
1 million or more up to 2 million Greater of 80 of regulatory capital or 125,000 75,000 50,000
2 million or more up to 3 million Greater of 80 of regulatory capital or 155,000 105,000 50,000
3 million or more up to 5 million Greater of 70 or regulatory capital or 185,000 125,000 60,000
8Revised Aggregate Lending Limits Class 1
Asset Size Proposed lending limit for a person or entity and connected persons Current Limit for a person or entity and connected persons Minimum Increase
5 million or more up to 10 million Greater of 60 of regulatory capital or 235,000 150,000 85,000
10 million or more up to 20 million Greater of 50 of regulatory capital or 295,000 175,000 120,000
20 - 30 million Greater of 30 of regulatory capital or 400,000 250,000 to 375,000 75,000 - 150,000
30-40 million Greater of 30 of regulatory capital or 400,000 375,000 to 500,000 75,000 - 100,000
40-50 million Greater of 30 of regulatory capital or 400,000 500,000 to 620,000 100,000 - 130,000
9Revised Individual Lending Limits Class 1
Class of loan Percentage of total lending limit Current limit per table
Agricultural Loan 0 Subject to Lending License
Bridge loans 100 Approx 80 up to 20 million 100 above 20 million
Institutional Loan 50 Subject to Lending License
Loans to Unincorporated Associations 5 Subject to Lending License
Personal loans, fully secured 20 The current limit is not limited to fully secured loans but rather any personal loan. Approx 20 up to 20 million 20 above 20 million
Personal loans, under-secured 6 Subject to Lending License
Residential mortgage loan 100 Approx 80 up to 20 million 100 above 20 million
Loan under a syndicated loan agreement 0 Subject to Lending License
10MAJOR CHANGES CLASS 2
- Class 2 MIs Prudent Person Approach
- Improved flexibility for lending, investment and
liquidity - Limits etc. to be established in policy
- Max limit 25 of Reg. Capital for single exposure
for loans or investments unless otherwise
approved - Capital Test
- Add general loss provision to capital (up to
1.25 of RWA for BIS II or .75 of total assets
for leverage) - BIS II primary test with Operational Risk and
Interest Rate Risk components - Leverage floor based on asset size
- Reduction over three years to gain experience
11 Dual Capital Test Class 2 Institutions
Minimum of 8 Risk Weighted Capital or Minimum
Leverage Based on Table
Total Assets FYE2007 or earlier FYE 2008 FYE 2008 or later
lt50 million 5.00 4.75 4.50
50 - 100 million 4.75 4.50 4.25
100- 500 million 4.50 4.25 4.00
500 million to 1 billion 4.25 4.00 3.75
1 billion or more 4.00 3.75 3.50
12 Examples of Proposed Capital Rules
2007(effective minimum capital requirements in
yellow)
Total Assets Current Rules Min Capital Proposed Rules Proposed Rules Proposed Rules Proposed Rules
Total Assets Current Rules Min Capital Leverage Test Leverage Test Risk Weighted Test Risk Weighted Test
Total Assets Current Rules Min Capital Ratio Min Capital Avg RWA Min Capital
50 million 2.50 5.00 2.50 45 2.50
75 million 3.75 4.75 3.56 50 3.0
100 million 5.0 4.50 4.50 50 4.0
300 million 15.0 4.50 13.5 55 13.2
500 million 25.0 4.25 21.25 60 24.0
1 billion 50.0 4.00 40.0 60 48.0
13 Examples of Proposed Capital Rules
2009(effective minimum capital requirements in
yellow)
Total Assets Current Rules Min Capital Proposed Rules Proposed Rules Proposed Rules Proposed Rules
Total Assets Current Rules Min Capital Leverage Test Leverage Test Risk Weighted Test Risk Weighted Test
Total Assets Current Rules Min Capital Ratio Min Capital Avg RWA Min Capital
50 million 2.50 4.50 2.25 45 2.50
75 million 3.75 4.25 3.2 50 3.0
100 million 5.0 4.00 4.0 50 4.0
300 million 15.0 4.00 12.0 55 13.2
500 million 25.0 3.75 18.75 60 24.0
1 billion 50.0 3.50 35.0 60 48.0
14MAJOR CHANGES - DICO
- Change in Mandate Recognize Potential Conflicts
- promote and otherwise contribute to the
stability of the credit union sector with due
regard to the need to allow credit unions to
compete effectively while taking reasonable
risks - Responsible for Solvency Regulation
- Capital, liquidity, lending and borrowing
regulation including - Variances to limits for capital, liquidity and
lending - Changes to lending and Investment policies
- All orders can be appealed to the Financial
Services Tribunal
15MAJOR CHANGES - DICO
- DICO Governance
- Board composition
- Maximum number reduced to 9
- Qualifications established with a commitment to
ensure industry knowledge on board - Directors, officers and employees of credit
unions or caisses not eligible - Board Responsibilities
- Reporting to Minister annually on state of the
sector - Reporting to Minister on adequacy of fund
- Reporting on any other issues
16- Questions and Open Discussion