Issue of the current regulations for the foreign bank subsidiary
- Related Party Transactions (Banks) Regulations
Among other restrictions in the Related Party Transaction (Banks) Regulations, a term of a deposit by a foreign bank subsidiary with the foreign bank must not be longer than 30 days. In addition, the amount added to the aggregate of the amounts of all other deposits of the foreign bank subsidiary with its related parties must not exceed 50 per cent of the regulatory capital of the foreign bank subsidiary.
- Liquidity Adequacy Guideline
Certain foreign bank subsidiaries must maintain liquidity assets equal to 10 per cent or more of their total assets based on instructions by OSFI.
- Thin Capitalization Rule
Currently, the interest deduction is restricted to interest on debt equal to three times the amount of equity contributed by a specific non-resident. According to the 2000 federal budget, the debt-equity ratio will be reduced to 2:1 and the rules will be extended to loans to a Canadian corporation from a third party that are guaranteed or secured by a specified non-resident. The rules will apply not only to financial institutions but also to other industries.