HomEquity Bank Basel Disclosures

Introduction

The Basel Committee on Banking Supervision (“BCBS”) is an international forum for regular cooperation on banking supervisory matters. In June 2006, BCBS issued a revised capital framework, Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework – Comprehensive Version(“Basel II”). It is intended to improve capital regulation and promote stronger risk and capital management practices in the banking industry. In Canada, the Office of the Superintendent of Financial Institutions (“OSFI”) implemented the Basel II framework through the Capital Adequacy Requirements (“CAR”) Guideline. In June 2011, BCBS issued a revised framework Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (“Basel III”), which came into effect in Canada on January 1, 2013.

The Basel II and Basel III framework consists of three pillars:

Pillar 1 is the minimum capital requirements for credit, market and operational risk (capital ratios). Pillar 2 is a supervisory review to evaluate the quality and adequacy of the minimum capital requirements under Pillar 1. Pillar 2 requires OSFI to assess the appropriateness of a federally regulated financial institution’s Internal Capital Adequacy Assessment Process (“ICAAP”). Pillar 3 is market discipline and complements Pillar 1 and Pillar 2 through public disclosure. Capital and risk management disclosures contribute to a stable banking environment and enhance consistency and comparability.

In addition, the Basel III rules provide for transitional adjustments whereby certain aspects of the new rules will be phased in between 2013 and 2019. The only available transition allowance in the Basel III capital standards permitted by OSFI for Canadian banks relate to the multi-year phase out of non-qualifying capital instruments.

Basel III Pillar 3 Disclosures