CONSULATATION DRAFT ONTARIO REGULATION made under the CREDIT UNTIONS AND CAISSE POPULAIRES ACT, 1994 Amending Ontario Regulation 76/95 (Credit Unions)

CONSULATATION DRAFT
ONTARIO REGULATION

made under the
CREDIT UNTIONS AND CAISSE POPULAIRES ACT, 1994

Amending Ontario Regulation 76/95
(Credit Unions)

Note:     Ontario Regulation 76/95 has previously been amended. Those amendments are listed in the Table of Regulations - Legislative History Overview which can be found at www.e-Laws.gov.on.ca.

  1. Subsection 1 (1) of Ontario Regulation 76/95 is amended by adding the following definitions:

    "Capital Adequacy Guidelines for Ontario's Credit Unions and Caisses Populaires" means the publication with that title that is published in The Ontario Gazette by the Superintendent, as the publication may be amended from time to time; ("Lignes directrices relatives la suffisance du capital des caisses populaires et credit unions de l'Ontario")

    "class 1 credit union" means a credit union that is not a class 2 credit union; ("caisse de catgorie 1")

    "class 2 credit union" means a credit union that, according to section 1.1, is a class 2 credit union; ("caisse de catgorie 2")

    "risk weighted assets" means the amount of the risk weighted assets as determined under section 15; ("actif risques pondrs")

    "total assets" means the total assets as determined under section 13. ("actif total")
  2. The Regulation is amended by adding the following section:

    1.1  (1)   A credit union is a class 2 credit union if either of the following circumstances exist at any time after October 5, 2006:

    1. The total assets of the credit union are greater than or equal to $50 million.
    2. The credit union makes a commercial loan.

         (2)   A credit union becomes a class 2 credit union under subsection (1) on the first day on which either of the circumstances described in subsection (1) exist.

         (3)   A credit union becomes a class 2 credit union on October 6, 2007 if, on that date, it has an outstanding commercial loan that was made before October 6, 2006.

         (4)   Upon application to the Corporation, a credit union becomes a class 2 credit union when the Corporation is satisfied that,

    1. the credit union has established the policies required by sections 190 and 191 of the Act with respect to investment and lending;
    2. those policies are appropriate for the size and complexity of the credit union;
    3. the credit union is able to demonstrate that it is complying with the Corporation's by-laws, including the by-law prescribing standards of sound business and financial practices; and
    4. the credit union is complying with the minimum capital requirements prescribed by this Regulation for a class 2 credit union.

         (5)   Once a credit union becomes a class 2 credit union, it remains a class 2 credit union in perpetuity.

  3. Section 12 of the Regulation is revoked and the following substituted:

    12  (1)    A class 1 credit union has adequate capital if its regulatory capital is at least 5 per cent of its total assets.

         (2)   A class 2 credit union has adequate capital for a financial year if the following conditions are satisfied:

    1. Its regulatory capital expressed as a percentage of its total assets is equal to or greater than the percentage in the cell of the Table to this section that is,

      1. in the row that corresponds to the credit union's total assets for the financial year, and

      2. in the Column that corresponds to the financial year.

    2. The sum of its regulatory capital and its general loan loss allowance is at least 8 per cent of its risk weighted assets.

         (3)   For the purposes of paragraph 2 of subsection (2), the amount of a credit union's general loan loss allowance must not exceed 1.25 per cent of the credit union's risk weighted assets.

    TABLE
    MINIMUM REGULATORY CAPITAL FOR CLASS 2 CREDIT UNIONS
    Column 1
    Total assets
    Column 2
    Percentage for financial year ending after October 5, 2006 and on or before December 31, 2007
    Column 3
    Percentage for financial year ending after December 31, 2007 and on or before December 31, 2008
    Column 4
    Percentage for financial year ending on or after January 1, 2009
    Less than $50 million 5.00% 4.75% 4.50%
    $50 million or more but less than $100 million 4.75% 4.50% 4.25%
    $100 million or more but less than $500 million 4.50% 4.25% 4.00%
    $500 million or more but less than $1 billion 4.25% 4.00% 3.75%
    $1 billion or more 4.00% 3.75% 3.50%
  4. (1)   Subsection 13 (1) of the Regulation is amended by striking out "The value of the total assets of a credit union" at the beginning and substituting "The total assets of a credit union".

    (2)    The definition of "B" in subsection 13 (1) of the Regulation is amended by adding "and" at the end of clause (a) and revoking clause (c).

  5. (1)   Paragraph 4 of subsection 14 (2) of the Regulation is amended by striking out "published in The Ontario Gazette by the Superintendent, as it may be amended from time to time" at the end.

    (2)   Paragraph 1 of subsection 14 (3) of the Regulation is revoked and the following substituted:

    1. The amount of goodwill and other intangible assets.

    (3)   Paragraph 6 of subsection 14 (3) of the Regulation is amended by striking out "published in The Ontario Gazette by the Superintendent, as it may be amended from time to time" at the end.
  6. (1)   Subsection 15 (1) of the Regulation is revoked and the following substituted:

    RISK WEIGHTED ASSETS OF A CREDIT UNION

    (1)   In this section,

    "specific provision" means, in respect of a loan made by a credit union, the amount of the prescribed monthly provision for doubtful loans as determined under subsection 22 (1) that is attributable to the loan and the amount of the prescribed reserves as determined under subsection 22 (2) that is attributable to the loan.

    (1.1) The amount of a credit union's risk weighted assets is the amount calculated using the formula,

    A + B + C

    in which,

    1. is the sum of all amounts each of which is calculated by multiplying the value of an asset of the credit union by the percentage described in subsection (2), (3), (4), (4.1), (5), (6), (7) or (8), as the case may be, that applies to that asset,

    2. is the amount of the credit union's applicable operational risk as determined under subsection (10), and

    3. is the amount of the credit union's applicable interest rate risk as determined under subsection (12).
    (2)   Subsections 15 (4), (4.1) and (5) of the Regulation are revoked and the following substituted:

    (4)   the percentage is 35 per cent for the following types of assets:

    1. Qualifying residential mortgage loans on residential property that is or will be occupied by the borrower, or that is rented, including,

      1. a loan that is secured by a first mortgage on an individual condominium residence or on a residential dwellings with one to four units and that is made to, or guaranteed by, one or more persons, but only if,

        1. the loan is not 90 days or more past due, and

        2. the loan does not exceed a loan-to-value ratio of 75 per cent, and

      2. collateral mortgages on an individual condominium residence or on a residential dwelling with one to four units, but only if,

        1. the loans are made to, or guaranteed by, one or more persons,

        2. no other person holds a senior or intervening lien on the property to which the collateral mortgages apply,

        3. the loans are not 90 days or more past due, and

        4. the loans in the aggregate do not exceed a loan-to-value ratio of 75 per cent.

    2. Securities that are secured by mortgages and not guaranteed by the Canada Mortgage and Housing Corporation under the National Housing Act (Canada).

    (4.1) The percentage is 50 per cent for the following types of assets:

    1. The amount, net of specific provisions, of qualifying residential mortgage loans that are more than 90 days past due, but only if the specific provisions constitute more than 20 per cent of the outstanding amount of the loans.

    (5)   The percentage is 75 per cent for the following types of assets:

    1. Personal loans.

    2. Agricultural loans.

    3. Uninsured collateral mortgages that would otherwise be qualifying residential mortgage loans by virtue of subparagraph 1 b of subsection (4), except that their loan-to-value ratio for a condominium residence or residential dwelling exceeds 75 per cent.

    4. Commercial loans made to a person where the sum of all commercial loans made to that person and to any connected persons does not exceed the lesser of 0.035 per cent of the credit union's total assets and $1.25 million.

    5. Residential mortgage loans other than those described in paragraph 5 of subsection (2) or those described in subsection (4).

    (3)   Paragraph 1 of subsection 15 (6) of the Regulation is revoked and the following substituted:

    1. Commercial loans, other than commercial loans described in paragraph 4 of subsection (5) or in paragraph 1 of subsection (7).

    (4)   Paragraph 3 of subsection 15 (6) of the Regulation is revoked and the following substituted:

    1. The value attributed to any off balance sheet exposure of the credit union as calculated in accordance with the Capital Adequacy Guidelines for Ontario's Credit Unions and Caisses Populaires.

    2. The amount, net of specific provisions, of loans, other than qualifying residential mortgage loans, that are more than 90 days past due, but only if the specific provisions constitute 20 per cent or more of the outstanding amount of each loan.

    3. The amount, net of specific provisions, of qualifying residential mortgage loans that are more than 90 days past due, but only if the specific provisions constitute less than 20 per cent of the outstanding amount of each loan.

    (5)    Section 15 of the Regulation is amended by adding the following subsections:

    (7)   The percentage is 150 per cent for the following types of assets:

    1. The amount, net of specific provisions, of loans, other than qualifying residential mortgage loans, that are more than 90 days past due, but only if the specific provisions constitute less than 20 per cent of the outstanding amount of each loan.

    (8)   If a person to whom a commercial loan described in paragraph 1 of subsection (6) is made has a credit rating described in the Capital Adequacy Guidelines for Ontario's Credit Unions and Caisses Populaires, the percentage determined in accordance with those Guidelines applies, instead of the percentage specified in subsection (6), in respect of the commercial loan.

    (9)   Unless another amount is approved by the Superintendent, a credit union's applicable operational risk is the amount calculated using the formula,

    D/0.08

    in which,

    1. is the amount of the credit union's capital charge for operational risk as determined under subsection (11).

    (10)  A credit union's capital charge for operational risk is the amount calculated using the formula,

    E + F + G X 0.15
    H
    in which,

    1. is the greater of,

      1. the amount of the credit union's interest income less its interest expenses for its most recently ended financial year plus all of its other non-interest income for its most recently ended financial year, and
      2. zero
    2. is the amount that would be determined under the definition of "E" if that definition applied to the credit union's second most recently ended financial year,
    3. is the amount that would be determined under the definition of "E" if that definition applied to the credit union's third most recently ended financial year, and
    4. is the greater of,

      1. the number of years in which the amounts determined under the definitions of "E", "F" and "G" exceed zero, and
      2. one.
    (11) Unless another amount is approved by the Superintendent, a credit union's applicable interest rate risk is the amount calculated using the formula,



    J/0.08


    in which,

    1. is the amount of the credit union's capital charge for interest rate risk as determined under subsection (13).

    (12) A credit union's capital charge for interest rate risk is the amount calculated using the formula,



    K 0.15


    in which,

    1. is the amount of the credit union's exposure, determined in accordance with the techniques referred to in paragraph 2 of subsection 78 (1), to interest rate risk.
  1. Section 48 of the Regulation is revoked and the following substituted:

    48.  For the purposes of this Part, a credit union's regulatory capital is determined by using its most recent audited financial statements.
  2. Section 52 of the Regulation is revoked and the following substituted:

    52.  An agricultural loan is a loan other than a residential mortgage loan that is made for the purposes of financing,

    1. the production of cultivated or uncultivated field-grown crops;
    2. the production of horticultural crops;
    3. the raising of livestock, fish, poultry or fur-bearing animals; or
    4. the production of eggs, milk, honey, maple syrup, tobacco, wood from woodlots or fibre or fodder crops.
  1. (1) Paragraph 3 of section 53 of the Regulation is revoked and the following substituted:

    3. The funds from the sale of another residential property owned by the individual will be used to repay the loan.

    (2)  Paragraph 6 of section 53 of the Regulation is revoked and the following substituted:

    6. The loan is fully secured by a mortgage on the residential property being sold or, before the loan is made, the borrower's solicitor has given the credit union an irrevocable letter of direction from the borrower stating that the funds from the sale of the residential property being sold will be remitted to the credit union.

  2. (1)  Section 54 of the Regulation is amended by striking out the portion before paragraph 1 and substituting the following:

    54.  A commercial loan is a loan, other than any of the following types of loans, that is made for any purpose:

    (2)  Subparagraph 7 i of section 54 of the Regulation is revoked and the following substituted:

    1. fully guaranteed by a financial institution other than the credit union making the loan,
  3. Section 57 of the Regulation is revoked and the following substituted:

    57.  (1)  In this section,

    "residential mortgage loan" means a loan that is secured by residential property; ("")

    "residential property" means real property consisting of buildings that are used, or are to be used, to the extent of at least one half of the floor area of the buildings, as one or more private dwellings. ("")

        (2) A credit union shall not make a residential mortgage loan to a person for the purpose of purchasing, renovating or improving the residential property or for the purpose of refinancing such a loan if the amount of the residential mortgage loan, together with the amount then outstanding of any mortgage having an equal or prior claim against the residential property, would exceed 75 per cent of the value of the property when the residential mortgage loan is made.

        (3) Subsection (2) does not apply in any of the following circumstances:

    1. If the loan is made or guaranteed under the National Housing Act (Canada).
    2. Where the amount of the residential mortgage loan would exceed 75 per cent of the value of the residential property when the loan is made, if repayment of the amount of the loan that exceeds 75 per cent of value of the property is guaranteed by a government agency or insured by an insurer approved by the Superintendent.
    3. If the credit union acquires from an entity securities that are issued or guaranteed by the entity and that are secured by residential property, or if the credit union makes a loan to the entity that is secured by such securities.
    4. If the loan is secured by a mortgage and,

      1. the mortgage is taken back by the credit union on a residential property disposed of by the credit union, including property disposed of by way of a realization of a security interest, and
      2. the mortgage secures payment of an amount payable to the credit union for the property.
    5. The loan is secured by a promissory note and is further secured by a mortgage on residential property.
  4. Sections 61, 62, 63 and 65 of the Regulation are revoked and the following substituted:

    LENDING LIMITS
    LENDING LIMITS — TOTAL AMOUNT OF LOANS TO PERSON



     61.  
    (1)  A class 1 credit union whose total assets are described in a row in Column 1 of the Table to this section shall not make a loan to a person if, as a result of making the loan, the total amount of all outstanding loans made by the credit union to the person and any connected personswould exceed the amount of the total lending limit set out in the same row of Column 2 of the Table.

    (2)  A class 2 credit union shall not make a loan to a person if, as a result of making the loan, the total amount of all outstanding loans made to the person and any connected persons would exceed 25 per cent of the credit union's regulatory capital.

    (3)  For the purposes of this section, the total amount of all outstanding loans made by a credit union to a person and any connected persons excludes the portion, if any, of a loan that,

    1. is guaranteed by the Government of Canada, the government of a province or territory of Canada, a municipality or an agency of such a government or municipality;
    2. is insured by an insurer approved by the Superintendent; or
    3. is secured by deposits of the borrower with the credit union.

Page: 885  |