Liabilities and equity increased $23.9 billion from October 31, 2012. The change primarily reflects increases in deposits of $34.5 billion, securities lent or sold under repurchase agreements of $7.9 billion and shareholders' equity of $1.0 billion, partially offset by decreases in derivative financial liabilities of $15.8 billion and securities sold but not yet purchased of $2.4 billion. All remaining liabilities and equity decreased by a combined $1.3 billion.
The $34.5 billion increase in deposits was largely driven by a $26.6 billion increase in business and government deposits due to increased U.S. dollar deposits and wholesale funding issuances. Deposits by individuals increased $4.6 billion, largely driven by increased retail operating deposits in P&C Canada, while deposits by banks increased $3.3 billion.
Contractual obligations by year of maturity are outlined in Note 18 to the unaudited interim consolidated financial statements.
Third Quarter 2013 Regulatory Capital Review
BMO's Basel III capital position is strong, with a Common Equity Tier 1 (CET1) Ratio of 9.6% at July, 31, 2013, down from 9.7% at the end of the preceding quarter, up from a pro-forma estimate of 8.7% at October 31, 2012, and well in excess of the expectation of the Office of the Superintendent of Financial Institutions (OSFI) that banks attain a 7% target, as discussed in the following paragraph.
Effective the first quarter of 2013, regulatory capital requirements for BMO are determined on a Basel III basis. In 2013, the minimum required Basel III capital ratios are a 3.5% CET1 Ratio, 4.5% Tier 1 Ratio and 8% Total Capital Ratio, such ratios being calculated using a five year phase-in of regulatory adjustments and nine year phase-out of instruments that no longer qualify as regulatory capital under the Basel III rules. However, OSFI's guidance requires Canadian deposit-taking institutions to meet the 2019 Basel III capital requirements in 2013, other than the phase-out of non-qualifying capital, (also referred to as the 'all-in' requirements) and expects them to attain a target Basel III CET1 Ratio of at least 7% (4.5% minimum plus 2.5% capital conservation buffer) by January 31, 2013. On March 26, 2013, OSFI announced that, effective 2016, BMO and five other domestic systemically important banks (D-SIBs) would each be required to hold a 1% CET1 buffer, in addition to the 2.5% capital conservation buffer, to reduce the probability of D-SIB failure.
The CET1 Ratio decreased by less than 10 basis points from the second quarter, due primarily to higher risk-weighted assets (RWA), as discussed below, and the impact of share repurchases under our normal course issuer bid (NCIB), largely offset by higher CET1 capital, as discussed below. The CET1 ratio increased by approximately 90 basis points from our pro-forma estimate at October 31, 2012, due to higher CET1 capital and lower RWA, as described below.
CET1 capital at July 31, 2013, was $20.6 billion, up $0.4 billion from the second quarter and up $1.3 billion from the pro-forma CET1 capital estimate of $19.3 billion at October 31, 2012, due mainly to retained earnings growth and the issuance of common shares through the Shareholder Dividend Reinvestment and Share Purchase Plan (DRIP) and the exercise of stock options, partly offset by the purchase and cancellation of common shares under the bank's NCIB share repurchase program.
The Basel III RWA of $214 billion at July 31, 2013, was up $6 billion from the second quarter, primarily due to model methodology and calibration changes and the impact of foreign exchange on our U.S.-dollar-denominated RWA. The RWA increase from new loan originations was offset by paydowns of higher risk-weighted loans and positive credit migration. Our July 31, 2013 RWA was $8 billion lower than the Basel III pro-forma estimate of $222 billion at October 31, 2012. Compared to October 31, 2012, the decrease in RWA was due mainly to lower Credit Valuation Adjustment (CVA) RWA, lower risk in certain portfolios and better risk assessments. The lower CVA RWA resulted from OSFI's decision, announced in December 2012, to delay the effective date for the imposition of the CVA risk capital charge until January 2014. This delay improved our CET1 Ratio, at July 31, 2013, by approximately 35 basis points.
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