OSFI undertakes impact study of proposed minimum capital test

The Office of the Superintendent of Financial Institutions (OSFI) is testing the practicality of the market and credit risk components of its proposed minimum capital test.
A working group is now undertaking the first quantitative impact study for the new Minimum Continuing Capital and Surplus Requirements (MCCSR).
The study covers the market and credit risk components of the new approach. The main purpose of the study is to test the practicality of the methods being proposed for the new components as well as to estimate the potential impact of adopting these components.
The new market risk component is based on applying shocks to interest rates, equities, and other market variables that affect the valuation of a company’s assets and liabilities, and measuring the change in the company’s financial position under these shocks.
The new credit risk component retains the existing factor-based methodology, but differs from current requirements in that the factors used depend on both the term and credit quality of an obligation.
The credit risk factors in the impact study are based on the asymptotic single risk factor model that was used to derive requirements under the Basel II foundation internal ratings based approach.
Both the market and credit risk factors have been designed to only provide for unexpected losses.
To obtain the worksheets for the study, visit:
http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3309
OSFI asks that worksheets be completed and returned by Dec. 11, 2009.