Canada’s financial watchdog says financial institutions are showing resilience despite elevated vulnerabilities
The Office of the Superintendent of Financial Institutions (OSFI) confirmed that Canada’s domestic stability buffer (DSB) will remain unchanged at 3.5% of total risk-weighted assets for the country’s six largest banks.
The decision reflects both confidence in their capital strength and caution around persistent structural risks, with the regulator’s assessment remaining that the benchmark appropriately aligns with current conditions.
The C.D. Howe Institute’s Domestic Stability Buffer Council urged the regulator to hold the DSB at 3.5% at its recent meeting.
According to OSFI’s analysis, the major vulnerabilities facing Canada’s financial system, such as elevated household indebtedness and areas of corporate credit sensitivity, have stayed largely stable, even if they remain above long-term norms. At the same time, domestic banks exhibit robust capital positions, with Common Equity Tier 1 (CET1) ratios averaging 13.6%, comfortably above supervisory expectations of 11.5%.
In accompanying remarks, Superintendent Peter Routledge highlighted that the capital buffer remains proportionate to the level of systemic vulnerability observed.
“OSFI uses the DSB tool to ensure Canada’s six systemically important banks hold capital that is appropriate for the level of risk in the financial system. This underpins the resilience of Canada’s financial sector. Today, Canada’s six largest banks hold capital levels well above supervisory expectations. This enables them to provide core banking services to the Canadian economy throughout the business cycle,” said Routledge.
He reiterated that the DSB framework, which OSFI calls a balanced, made-in-Canada capital buffer, is deliberately calibrated to cushion banks against future shocks without triggering automatic restrictions on dividends or share repurchases if breached.
OSFI’s statement made clear that while the buffer could be adjusted higher or lower if the risk environment changes significantly, there is no current expectation of increasing the level beyond 3.5%. That stance aligns with OSFI’s view that the current range of 0% to 4% remains appropriate for addressing low-probability, high-impact stress events.
“We continue to closely monitor existing vulnerabilities and risks, including still elevated and increasing household indebtedness, uncertainty in housing and commercial real estate, and some signs of strain in credit such as gradually rising delinquencies and provisions in certain consumer and business segments,” Routledge said.
