Non-Viable Contingent Capital Requirements For Financial Institutions – An Update

As of January 1, 2013 Canadian deposit taking institutions were no longer able to include new issues of preferred shares and subordinated debt in their Tier 1 and Total Capital ratios unless those instruments included a provision that allows the financial institution to either permanently convert these instruments into common shares or fully write-down the instrument, in the event that the institution is no longer viable. Instruments that contain these features are known as non-viability contingent capital ("NVCC"). Existing instruments without the non-viable contingent capital provision, also known as non-qualifying capital, will be gradually phased out of regulatory capital at a rate of 10% per year until 2022, after which they will no longer qualify as regulatory capital.