OSFI bumps up domestic stability buffer to 3.5%

The measure expands the amount of liquid capital the major banks need to hold to address potential vulnerabilities

OSFI bumps up domestic stability buffer to 3.5%

The Office of the Superintendent of Financial Institutions (OSFI) has announced that it is raising the domestic stability buffer on each Canadian bank by half a percentage point to 3.5% of total risk-weighted assets, effective November 1, 2023.

This ensures that “more capital is available to continue lending and absorb losses in times of stress,” the federal regulator said in its announcement. “This contributes to the long-term resilience of Canada’s financial system.”

The measure builds on a previous 0.5% increase to the buffer last December. The further expansion came about as a response to existing market realities, OSFI said.

“Current vulnerabilities, including high household and corporate debt levels, the rising cost of debt, and increased global uncertainty around fiscal and monetary policy, coupled with Canada’s financial sector showing strength throughout the winter and spring, has presented the opportunity for OSFI to build more resiliency in the system,” the regulator explained.

Peter Routledge, Superintendent of Financial Institutions, said that raising the buffer 3.5% shores up the Canadian banking system’s robustness in the face of these vulnerabilities.

“This change will help Canada maintain a resilient financial system,” Routledge said. “The DSB is a safety buffer for the banking system that can be lowered when appropriate, such as during economic downturns.”

Routledge assured that the regulator will continue closely monitoring domestic and global market developments.

“Should existing vulnerabilities intensify, or new risks arise, OSFI will take action to support the resilience of regulated entities as well as help safeguard the stability of the Canadian financial system,” OSFI said.