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The Office of the Superintendent of Financial Institutions has announced:

Deposit-taking institutions and life insurance companies are required to deduct, from tier 1 capital, identified intangible assets in excess of 5% of gross tier 1 capital. The requirement applies to identified intangible assets purchased directly or acquired in conjunction with or arising from the acquisition of a business. These include, but are not limited to, trademarks, core deposit intangibles, mortgage servicing rights, purchased credit card relationships, and distribution channels. Identified intangible assets include those related to consolidated subsidiaries, subsidiaries deconsolidated for regulatory capital purposes, and the proportional share in joint ventures subject to proportional consolidation.
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Section 3064 of the CICA Handbook, Goodwill and Intangible Assets, requires that computer software that is an integral part of the related hardware (such as the operating system) is to be treated as property, plant and equipment, while software that is not an integral part of the related hardware is to be treated as an intangible asset. Section 3064 is effective for fiscal years beginning on or after October 1, 2008.

This advisory confirms that, pending a future review of the treatment of intangible assets:

• computer software now classified as an intangible asset solely due to the requirements of CICA Handbook Section 3064 is not included in the definition of identified intangible assets under the CAR and MCCSR guidelines for deposit taking institutions and life insurance companies.
• property and casualty insurers and cooperative credit associations are not required to include computer software in the amount of intangible assets deducted from capital.

RBC has disclosed:

On November 1, 2008, we adopted Canadian Institute of Chartered Accountants Handbook section 3064, Goodwill and Other Intangible Assets . As a result of adopting Section 3064, we have reclassified $805 million of software from Premises and equipment to Other intangibles on our Consolidated Balance Sheets and corresponding depreciation of $53 million from Non-interest expense – Equipment to Non-interest expense – Amortization of other intangibles on our Consolidated Statements of Income. Amounts for prior periods have also been reclassified.

They already have a goodwill deduction from Tier 1 capital, so if the accounting change had been passed through by OSFI, this would have resulted in an additional deduction of about $750-million, about 2% of their current $31,324-million total.

This entry was posted on Monday, October 19th, 2009 at 1:52 pm and is filed under Regulatory Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.