Capital Assessment Criteria

Role of CapitalPermanent link to this section

Capital is a source of financial support that protects a provincially regulated financial institution (“PRFI”) against unexpected losses and is therefore a key contributor to the PRFI’s safety and stability. Capital management is the ongoing process of increasing and maintaining capital at levels that support planned operations. For complex PRFIs, capital management also involves allocation of capital to recognize the level of risk in its various activities.

Adequacy of CapitalPermanent link to this section

The following statements describe the rating categories used in assessing a PRFI’s capital adequacy and capital management policies and practices. Capital adequacy includes both the level and quality of capital. The assessment is made in the context of the nature, scope, complexity, and risk profile of a PRFI.

Strong	Capital adequacy is strong for the nature, scope, complexity, and risk profile of the PRFI, and its capital ratio meets or exceeds the PRFI’s internal capital target under most adverse business and economic conditions. The trend in capital adequacy over the next 12 months is expected to remain positive. Capital management policies and practices are superior to generally accepted industry practices.
Acceptable	Capital adequacy is appropriate for the nature, scope, complexity, and risk profile of the PRFI, and its capital ratio meets the PRFI’s internal capital target under normal business and economic conditions. The trend in capital adequacy over the next 12 months is expected to remain positive. Capital management policies and practices meet generally accepted industry practices.
Needs Improvement	Capital adequacy is not always appropriate for the nature, scope, complexity, and risk profile of the PRFI and, although meeting minimum regulatory requirements, may not meet or is trending below target levels. The trend in capital adequacy over the next 12 months is expected to remain uncertain. Capital management policies and practices may not meet generally accepted industry practices.
Weak	Capital adequacy is inappropriate for the nature, scope, complexity, and risk profile of the PRFI and does not meet or marginally meets minimum regulatory requirements. The trend in capital adequacy over the next 12 months is expected to remain negative. Capital management policies and practices do not meet generally accepted industry practices.

Capital CriteriaPermanent link to this section

Essential Elements	Criteria
1. Capital Adequacy	1.1 Adequacy of the levels of capital in relation to the regulatory requirement, supervisory target, the PRFI’s risk profile, and internal targets. 1.2 Appropriateness of the types and mix of capital instruments and the overall quality of capital. 1.3 Extent to which there is a presence of regulatory arbitrage in managing capital adequacy. 1.4 Adequacy of the level of capital to support planned business activities including infrastructure investments (e.g., technology.) and future consumer/member needs. 1.5 Extent to which the PRFI is able to raise capital either through earnings or directly from shareholders/members.
2. Peer Group Comparison	2.1 Capital Adequacy trends compared to its peers.
3. Capital Management	3.1 Extent to which capital management policies and practices are enterprise-wide and supported by sufficient authority and resources. 3.2 Appropriateness of the process for developing capital management policies and practices. 3.3 Appropriateness of capital management policies and practices. 3.4 Extent to which the capital planning process is integrated with the PRFI’s strategic and business plans and extent to which it provides for regular monitoring to ensure that it continues to meet regulatory minimum and target capital requirements. 3.5 Extent to which the capital management process provides for an appropriate level of stress testing under different scenarios, including possible events or changes in environment conditions that could adversely impact the PRFI. 3.6 Appropriateness of the outsourcing of capital management processes to service providers. 3.6 Adequacy of the capital plan. 3.7 Appropriateness of the PRFI’s recovery plan.
4. Senior Management and Board Oversight	4.1 Extent to which senior management and board approval is required for: • Capital management mandate and resources; • Capital management policies and practices; and • Annual capital plan and recovery plan. 4.2 Adequacy of policies and practices to provide complete, accurate, and timely reports on the PRFI’s capital management to enable senior management and the board (or a board committee) to assess compliance with: • The PRFI’s capital plan, including the results of scenario testing; and • Regulatory capital requirements. 4.3 Adequacy of policies and practices for performing regular independent reviews to ensure the capital management complies with approved policies and practices, and regulatory requirements.