General Guidance for Developing Differential Premium Systems

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October 31, 2011 For more information on CDIC’s differential premium system and the comprehensive review consultation process, please refer to the CDIC web site at: http://www.cdic.ca 3. Colombia (Fondo de Garantias de Instituciones Financieras) FOGAFIN (Colombian Deposit Insurance Agency) was created in 1985 as a consequence of the financial crisis at the beginning of the 1980´s. Before 1998, FOGAFIN charged all its bank member institutions the same deposit insurance premium, regardless of the risk of loss posed by a member to the deposit insurance fund. In 1998, the flat rate system was complemented with a risk criteria based on the credit risk rating given by the risk rating agencies. In 2000 this scheme was modified using a CAMEL score calculated by the Colombian Financial Supervisory Authority. In 2009 FOGAFIN established its own CAMEL score. Today FOGAFIN has a hybrid premium scheme in which there is a flat rate premium charge over eligible deposits and a variable premium based on the risk profile of the member institution. The flat rate premium is paid by the member institutions quarterly through the year. The level of risk of the member institutions is evaluated monthly using a CAMEL model. This CAMEL evaluation gives a score between 1 (for those institutions with the highest risk profile) and 5 (for those institutions with the lowest risk profile). The next table summarizes the main aspects of the CAMEL evaluation. 37
October 31, 2011 CAMEL 22 Weight Ranges Score Capital: < 8% 1 >= 8% y < 9% 2 Solvency 25% >= 9% y < 10% 3 >= 10% y < 12% 4 > 12% 5 Asset: > 8% 1 > 6% y 4% y 3% y = 70% y = 60 % y < 70% 3 >= 50% y < 60% 4 < 50% 5 Earnings < 0% 1 >= 0% y < 1% 2 Return over assets (ROA) 25% >= 1% y < 2% 3 >= 2% y < 3% 4 > =3% 5 Liquidity: -10% y 4% y 6% y 15% 5 It is important to highlight that the evaluation gives a higher weight (25%) to the capital and earnings variables. In order to have an annual score of the risk performance, at the beginning of the next year a monthly average CAMEL score is calculated using the following equation: 20% Where: (1) is the score of the month i and indicator j. is the weight of indicator j. This CAMEL score is the key element to differentiate the member institutions and sets the differential premium among them. This score determines an additional payment that risky institutions have to make or the reimbursement that the member receives in cases of a low risk profile. The 22 The ranges of each indicator were found taking into account the empirical distribution of each indicator and divided in five percentiles. 38
Page 1 and 2: General Guidance for Developing Dif
Page 3 and 4: October 31, 2011 I. Executive Summa
Page 5 and 6: October 31, 2011 Transparency, dis
Page 7 and 8: October 31, 2011 III. Background So
Page 9 and 10: October 31, 2011 It is important to
Page 11 and 12: October 31, 2011 be difficult to ob
Page 13 and 14: October 31, 2011 Combined approache
Page 15 and 16: October 31, 2011 variety of relevan
Page 17 and 18: October 31, 2011 and those receivin
Page 19 and 20: October 31, 2011 a premium increase
Page 21 and 22: October 31, 2011 information or eve
Page 23 and 24: October 31, 2011 categories; (2) ut
Page 25 and 26: October 31, 2011 necessary, they sh
Page 27 and 28: October 31, 2011 12)Ronn, E. and A.
Page 29 and 30: October 31, 2011 1) The rating is a
Page 31 and 32: October 31, 2011 and, where circums
Page 33 and 34: October 31, 2011 quantitative score
Page 35 and 36: October 31, 2011 necessary to achie
Page 37: October 31, 2011 by April 30, they
Page 41 and 42: October 31, 2011 The Autorité de C
Page 43 and 44: October 31, 2011 There is a Guarant
Page 45 and 46: October 31, 2011 situation of a mem
Page 47 and 48: October 31, 2011 Methodology used f
Page 49 and 50: Q1 Q2 Violations of prudential and
Page 51 and 52: October 31, 2011 classification gro
Page 53 and 54: October 31, 2011 transparency, that
Page 55 and 56: October 31, 2011 Premium categories
Page 57 and 58: October 31, 2011 institutions of th
Page 59 and 60: October 31, 2011 S/N Appendix I Dif
Page 61 and 62: October 31, 2011 and was submitted
Page 63 and 64: October 31, 2011 Date Membership 07
Page 65 and 66: October 31, 2011 (1) Premiums The d
Page 67 and 68: October 31, 2011 (a) If there is no
Page 69 and 70: October 31, 2011 • Premium Rates
Page 71 and 72: October 31, 2011 The premium system
Page 73 and 74: October 31, 2011 Adoption of Risk-B
Page 75 and 76: October 31, 2011 was required to re
Page 77 and 78: October 31, 2011 Tier 1 leverage ra
Page 79 and 80: October 31, 2011 Large Institution
Page 81 and 82: October 31, 2011 Assessment rate ad
Page 83 and 84: October 31, 2011 • Total risk-bas
Page 85 and 86: October 31, 2011 The following Figu
Page 87 and 88: October 31, 2011 Figure 2 - COPAB
Page 89 and 90:
October 31, 2011 financial soundnes
Page 91:
October 31, 2011 ANNEX II Deposit i
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