The Basel Committee of Banking Supervision sets out expectations for public disclosure of a bank’s risk management objectives and policies, reporting systems, and definitions to be published annually.
Description of the Bank
General Bank of Canada operates two lines of business: fixed rate indirect auto financing and commercial lending; funding its operations through the issuance of fixed rate Guaranteed Investment Certificates with terms up to 5 years. The Bank’s treasury function is kept intentionally straight forward, with asset and liability maturity bands constantly monitored and matched within self-imposed limits. All financial assets and liabilities are fully disclosed on the Bank’s balance sheet. The bank has no subsidiaries, and all operations are conducted in Canada. The Bank has a robust and effective system of controls to assess and manage risk across various spectra, including credit risk, interest rate risk, liquidity risk, market risk, and operational (including regulatory) risk. The Bank endeavors to satisfy all regulatory disclosure requirements, without disclosing excessive / unnecessary information, in consideration of the Bank’s lines of business and any potential competitive disadvantage that could arise from disclosure.
Capital and Capital Management
Capital and leverage ratios were calculated using the Basel III framework. Under Basel III, regulatory capital includes Common Equity Tier 1 (CET1), additional Tier 1 and Tier 2 capital. CET1 capital mainly consists of common shares, retained earnings and other components of equity. Tier 1 capital comprises predominantly CET1, with additional items that consist of capital instruments such as certain preferred shares. Tier 2 capital includes subordinated debentures that meet certain criteria and certain loan loss allowances. Total Capital is the sum of CET1, additional Tier 1 capital and Tier 2 capital.
Regulatory adjustments under Basel III include full deductions of intangibles, certain deferred tax assets, and non-significant investments in banking, financial and insurance entities. To manage the impact of Basel III regulatory adjustments, these adjustments are being phased in over a five year transition period, commonly referred to as the “transitional” period. Consequently, the Bank now reports on both the “transitional” and “all in” capital ratios, with the Bank being held to the “all in” ratio for determining minimum capital targets, where the “all in” ratio incorporates the full future impact of all transitional adjustments.
Regulatory capital ratios are calculated by dividing Total capital and Tier 1 capital by risk-weighted assets. The Bank’s assets, by classes, are risk weighted, with additional consideration given to the Bank’s operational risk, relying on the Basic Indicator approach to quantify operational risk. OSFI provides two approaches to determining credit risk, those being the Standardized Approach versus the Internal Ratings Based Approach, with the Bank following the former.